The ABCs of borrowing money
Amortization– the paying off of debt with a fixed repayment schedule in regular installments over a period of time for example with a mortgage or a car loan
APR– Annual Percentage Rate- the interest rate for a whole year (annualized), rather than just a monthly fee/rate, as applied on a loan, mortgage loan, credit card, etc.
Assets– any item of value that a person owns
Bankrupt– a financial situation in which a court declares one’s debts to be greater than the total value of one’s assets
Borrower– A person or company that has received money from another party with the agreement that the money will be repaid. Most borrowers borrow at interest, meaning they pay a certain percentage of the principal amount to the lender as compensation for borrowing.
Cash Value– the amount that an insurance policy is worth if canceled before maturity. An insurance company will lend to a policyholder based on his or her policy.
Co-applicant, Joint applicant, Co-signer– someone who signs a loan with the borrower, thus accepting legal responsibility for paying the debt if the borrower default or does not pay
Collateral– a property or other asset that a borrower offers as a way for a lender to secure the loan. If the borrower stops making the promised loan payments, the lender can seize the collateral to recoup its losses.
Cooling off period– a period of time after the loans origination when the borrower may cancel the loan without any penalties, or the period of time that must pass before a borrower is allowed to request a second loan from the same lender
Co-ownership– joint ownership between two or more persons
Creditor– lender; one to whom money is owed
Credit References– people who will recommend the credit applicant as a good credit risk.
Debt– money owed
Debt Balance– amount still owed on a debt at a given time
Default– failure to fulfill the terms of the loan agreement, failure to continue making loan payments
Dependents– those who rely on a person for support
Finance Charge– the total cost to use credit, including interest, loan fees, and credit insurance
Foreclosure– is the legal process by which a mortgagee, or other lien holder, usually a lender, obtains a court ordered termination of a mortgagor’s equitable right of redemption
Interest– the amount paid for the use of borrowed money
Interest Rate– the percentage of the principal that a borrower pays for the use of borrowed money
Lender– an individual, a public group, a private group or a financial institution that makes funds available to another with the expectation that the funds will be repaid, in addition to any interest and/or fees.
Liabilities– financial obligations, or money owed
Long-Term Loans– Loans for larger purchases, such as a home or a car
Mortgage– a loan for purchasing real estate. If the borrower does not repay the loan according to the terms of the contract, the lender can legally force the sale of property to pay off the loan.
Mortgage Holder– person or institution that made the mortgage loan
Payment amount– The amount a borrower must pay in full each due date
Payment due date– The date a borrower is required to make a payment toward the balance of their loan
Personal Loans– short-term or intermediate-term loans that are relatively small
Principal– the original sum of money borrowed in a loan, or the part of the amount borrowed which remains unpaid (excluding interest), here also called principal amount.
Proceeds– the amount of money a borrower receives from the loan
Real Estate– land and property attached to the land
Repayment term– The period of time in which a borrower must repay the money borrowed
Repossess, Reclaim– to take back what was sold on an installment plan or loan if payments are not made as agreed
Secured loan– a loan in which the borrower pledges some asset (e.g. a car or property) as collateral for the loan, which then becomes a secured debt owed to the creditor who gives the loan
Securities– stocks and bonds
Unsecured loan– a loan that is issued and supported only by the borrower’s creditworthiness, rather than by any type of collateral. An unsecured loan is one that is obtained without the use of property as collateral for the loan, and it is also called a signature loan or a personal loan. Borrowers generally must have high credit ratings to be approved for certain unsecured loans.
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