Personal Loan Glossary

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Acceptance Rate – The percentage of applicants who are successful in their application out of the total that applied for a loan.
Adverse Credit Rating – A bad credit rating.
Amortization - Loan payments by equal periodic amounts calculated to pay off the debt at the end of a fixed period, including accrued interest on the outstanding balance.
Amortized Loan - An amortized loan requires fixed, periodic payments that are applied to both the principal and interest until the loan is paid in full.
APR (Annual Percentage Rate) – A loan's APR is essentially its overall finance charge. It includes the principal as well as the interest component of the loan, and is shown as an annual rate.
Arrear – When you do not keep up with your monthly repayments or a payment is overdue. Arrears are calculated from the due date of the first missed payment.
Automatic Payment – Payment that will be taken directly from your bank account on the loan’s monthly due date. This strategy can simplify your financial housekeeping.
Balance Transfer – An arrangement in which you can switch from your existing lender to a new one. Borrowers prefer to transfer their outstanding debt to a new lender when the new lender's personal loan terms and rates are more appealing than that of the previous lender.
Balloon Payment – A loan payment that is at least the double the amount of previous payments, done to clear a debt.
Beneficiary – The lender on the note secured by a deed of trust.
Borrower – The person or party who is borrowing money as part of the loan agreement.
Borrower Default – Defaulting on a loan occurs when a borrower doesn’t pay back the loan as promised.
Bridge Loan – A temporary loan, provided to a borrower when the net proceeds from a sale of a prior residence are not available for the purchase of a new home.
Close of Escrow – The meeting between the buyer, seller and lender where the property and funds legally change hands.
Co-borrower – Someone who agrees to be jointly responsible for paying back a loan with you.
Co-signer (Co-applicant) – An individual who agrees to sign a loan to help someone with a lower credit score or no credit history qualify for a loan.
Collateral – Any asset that backs your loan. In case you fail to repay the loan on time or continuously default on payments, the lender has the right to repossess the asset you pledged as collateral for the loan.
Coronavirus Scam – Fraudulent emails or text messages that used the coronavirus pandemic to try to trick you into giving confidential details or money.
Credit – The ability to borrow money in order to purchase goods or services now and pay later.
Credit Bureau – An agency in charge of keeping track of your credit score.
Credit Score – A numerical expression of how sound your credit profile is. The credit bureaus decide your credit score after a thorough assessment of your credit history.
Curtailment – An additional payment made to reduce the principal balance of a loan.
Debt Consolidation – Where various existing debts are transferred into a single loan.
Default – Failing to keep up with loan repayments. Default has long-term repercussions and can affect your future borrowing capacity.
Deferment – Taking a break from paying monthly debt repayments for a specific time. To avail deferment, you will first require approval from the lender.
Downpayment – The difference between the purchase price of real estate and the loan amount. The borrower is responsible for providing the funds for the downpayment.
Early Repayment Charge – The amount of money a lender may charge if you decide to pay your loan off earlier than the agreed term of the loan.
Eligibility Criteria – Factors used to determine whether a person is eligible for a personal loan, like your age and the minimum annual income.
EMI (Equated Monthly Instalment) – The borrower's monthly obligation towards loan repayment. When you choose longer repayment tenure, your personal loan EMI will be on the lower side and vice versa.
FICO Score – A three-digit number that tells lenders how likely a consumer is to repay borrowed money based on their credit history.
Fixed Interest Rates – Interest rates that remain unchanged over the tenure of the loan.
Floating Interest Rates – Interest rates that keep changing over the tenure of the loan.
Forbearance – Allows borrowers to temporarily stop making payments or temporarily reduce monthly payment amounts for a specific period. Borrowers are responsible for paying the interest that accrues during this time for all loan types.
Force Majeure – Unforeseeable circumstances that prevent someone from fulfilling a contract.
Foreclosure – The legal process used to attempt to recover outstanding debt secured by collateral. The collateral is confiscated by the creditor and sold to repay this debt.
Grant – A financial award given for a specific purpose, such as facilitate a goal or incentivize performance in a specific area. Unlike loans, grants do not have to be paid back, but it is expected that the funds are employed for their stated purpose, which typically serves some larger good.
Guarantor – A person who guarantees that you will repay the loan in full. Lenders usually require guarantors when the credit history of a borrower is not up to the mark.
Hard Credit Search – When a lender takes a full look at your credit report.
Home Improvement Loan – A personal loan for funding a home improvement, e.g. to help fund a new kitchen, bathroom, loft conversion etc.
Hypothecation – Agreeing to use an asset as collateral in exchange for a loan.
Installment Loan – A loan with a fixed repayment period listed in the loan agreement.
Interest-Only Payment Loan – A non-amortizing loan in which the lender receives interest during the term of the loan and principal is repaid in a lump sum at maturity.
Interest Rate – The base percentage charged when borrowing money. It does not include fees or other charges that may be associated with a loan.
Jumbo Loan – A type of mortgage that is used to finance real estate that is too expensive for a conventional conforming loan. Jumbo loans are mainly used for large, luxury homes or properties in competitive markets. Lender – An individual or the organisation responsible for providing the loan. Usually it is a bank or a financial institution that lends money to borrowers.
Lien – In personal loan context, a lien comes into play when a borrower puts his assets as a guarantee to receive a personal loan. A lien gives a lender the legal power to seize and sell a borrower's collateral property if he defaults on a loan.
Line of Credit – Loans that do not require any kind of security or collateral and are usually offered at variable interest rates.
Loan Agreement – A contract between the borrower and the lender which outlines the terms and conditions of the loan.
Loan Amortization – It is used to create a fixed repayment schedule for fixed-interest rate loans and involves calculating how much money will go toward the principal and interest for each installment payment.
Loan Purpose – The reason why a person is choosing to take out a loan.
Mortgage – The sum of money borrowed from a lender, such as a bank, to purchase a property.
Mortgagee – A lender who holds a mortgage.
Mortgagor – A borrower who is obligated to pay on a mortgage.
Negative Amortization – An increase in the balance of a loan caused by adding unpaid interest to the loan balance; this occurs when the payment does not cover the interest due.
No Objection Certificate – The legal document that your lender gives to you after the successful repayment of your debt.
Non-recourse Loans – A loan that’s secured by collateral. In the event that the borrower defaults on his loan, the lender can seize the collateral attached to the loan.
Origination Fee – An up-front fee that remunerates the lender for the work of setting up the loan. These fees are typically a percentage of the principal and vary by lender.
Overpayments – During the period of the loan the borrower may decide he wants to pay back more than he originally agreed with the lender.
Payday Loans – Unsecured personal loans that can be availed based on the employment of the borrower. They are ideal for financial emergencies.
Personal Loan – Money to be borrowed and repaid over an agreed period of time.
Pre-approved Loan – Provided to the lender's existing customers. If a person has taken out any sort of loan from the lender, then based on borrowers previous debt repayment, the lender offers a pre-approved loan at a special interest rate.
Prepayment Fees (Penalties) – Are sometimes charged by lenders when a borrower pays his loan in full before its final payment due date. The lender will not make as much profit from the loan if the borrower pays it off early, and a prepayment fee is a way to recoup some of that loss.
Prequalification – A quick way for lenders to determine what kind of loan, if any, a borrower may qualify for.
Principal – The amount borrowed, not including interest or fees.
Recourse Loans – It is secured by collateral. If the borrower defaults on his loan, the lender can seize the asset attached to the loan.
Refinancing – Replacing an existing loan with a new loan that offers better terms and conditions, such as a lower interest rate or fees.
Repayment Holiday – Allows you to take a break from making the monthly payments for an agreed period.
Revolving Credit – Allows you to borrow funds as needed, up to your credit limit, making at least a minimum payment each month you have a balance.
Risk-based Pricing – When a lender offers different customers different interest rates based on individual circumstances.
Secured Loan – A personal loan that is secured on your home or another asset.
Signature Loan (Good Faith Loan) – A type of unsecured loan that relies on a borrower’s credit history, income and signature as assurance that he or she will repay it.
Soft Credit Search – A type of credit check that won’t affect your credit score. Some lenders will only carry out a hard credit search so make sure you check before applying.
Term of the Loan – The length of time in months or years that the borrower agrees to repay the loan.
Thrift Institution – A term encompassing savings banks, savings and loan associations, and credit unions. These institutions primarily accept consumer deposits and make home mortgages.
Total Amount Repayable – The whole sum of borrowed money in addition to the total amount of interest and fees charged.
Underwriting – Assessing the creditworthiness of a potential customer and deciding whether or not to accept their application for a loan.
Unsecured Loan – A loan that does not require the borrower to pledge any asset as collateral. There is usually a maximum amount an individual can borrow.
Usury – Loaning money at exorbitant interest rates.
Variable Interest Rate – An interest rate that changes on a periodic basis.

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