Ever get confused by all the lingo lenders use when they talk about loans and credit? But you don’t want to look dumb so you don’t really ask for any explanations. Instead, you just shake your head and act like you know what they’re talking about.
Well, in just a few minutes you’re going to discover what all those crazy words and letters mean. You’ll feel so much more confident and be able to make better loan decisions because you’ll finally understand what all the “smart” people mean when they use loan-related words.
This word explains the total cost of credit. The APR of a loan is its total finance charge. That means the APR includes the interest and fees you pay, but it is shown as a yearly rate. This enables you to compare loans with different fees and interest rates on a level playing field.
Automatic payments happen on a regular basis without you doing anything but setting them up one time. Some loan providers give you a lower interest rate if you set up an automatic payment plan.
There are two types of cash advances. One is similar to a payday loan (see definition below), while the other involves a credit card. You take a payment of cash against the available credit on your credit card. You usually have to pay a fee 3% to 5% on the cash you advance.
An item of value, usually a car or home that backs the loan. If you don’t pay back the loan the lender has a right to repossess or take back the collateral and sell it to pay the loan. Some lenders will also accept other personal property, like jewelry or stocks and bonds.
Organizations that review individual consumer credit information to create credit reports. Typically, lenders use these to make loan decisions, but employers and landlords may also them when making job or housing decisions.
This is a loan that combines other loans and credit card debts into one loan. This is usually done to get a lower interest rate and a lower payment. It can also provide the convenience of one payment instead of multiple loan payments.
Fees are extra costs associated with a loan beyond the interest rate. For example you may have to pay an origination fee (the cost of setting the loan up) or a processing fee. Always check the fine print as fees can boost the overall cost of a loan. Lenders have to include the cost of fees in the APR.
An interest rate that does go up or down during the life of the loan. It stays exactly the same as when you first received the loan.
This is the word used the costs you pay to get a loan. It is the amount you pay — as a percentage — to borrow or use the money for a period of time. For example, if you borrowed $1,000 with an interest rate of 10%, the cost of the loan is $100 (10% of $1,000).
A loan that does not require collateral and usually includes a variable (changing) interest rate. You can use part of a credit line or all if it as needed.
An unsecured personal loan that is based on your job and paycheck instead of your credit report. It is typically used for financial emergencies and has a shorter payment term and higher interest rate than a normal personal loan. Many states regulate the fees and interest rates for these loans.
A personal loan usually has a fixed interest rate and is not backed by collateral. You can use the money for any purpose you choose.
This is a fee a borrower pays if he pays a loan off early. Most personal loans don’t include prepayment penalties, but read the fine print carefully. You don’t not want to pay extra to pay your loan off early.
The best interest rate lenders charge to borrowers. This is usually for a short-term loan to customers who have excellent credit. Many lenders base their loan interest rates on the prime rate plus and additional interest rate. This enables them to charge higher interest to those taking riskier loans or who have a riskier credit profile.
The original amount borrowed. It does not include any interest or fees.
The time limit you have to pay back your loan. Some personal loans (payday) have to be paid back by the next paycheck while others may give you 12, 24 or even more months to repay.
An interest rate that changes based on an underlying index. Many banks use the Wall Street Journal Prime Rate and if it goes up so does the interest rate on loan. If it goes down, the interest rate on the loan decreases too.