Financial Terms

Here is a list of need-to-know terms for your financial well-being. Understanding the terms of your financial options is important in helping make good credit decisions.

Annual Percentage Rate (APR)
The cost of your loan expressed as a yearly percentage rate.

Something valuable that you own.

Lien against personal property.

A legal declaration of insolvency. Bankruptcy will not fix credit record problems and will be part of your credit history for 10 years. A new law now requires that you get credit counseling before you can file for bankruptcy.

Your present and future ability to make your payments.

The value of your assets and net worth.

How you’ve paid your bills or debts in the past.

Security you provide a lender. This is the repayment source if you can’t repay your loan.

Consumer Installment Loan
Used to cover personal expenses for you and your family; for example, a car loan or an unsecured loan for short-term needs such as buying a computer.

Money you borrow usually referred to as a loan. You make a promise to pay back the money you borrowed plus some extra. The extra amount is part of the cost of borrowing money.

Value of the home minus the debt owed for the home, usually in the form of a home loan.

Amount charged by financial institutions for activities like reviewing your loan application and servicing an account.

Finance Charge
The total dollar amount the loan will cost you. It includes interest, service charges and loan fees.

Legal proceeding initiated by a creditor to take possession of collateral that secured a defaulted loan.

Process granted by a court order to a lender that requires a third party, such as an employer to withhold part of an employee's salary to satisfy an unpaid debt. Part of the employee's salary is taken out in each pay period until the debt is paid.

Home Equity Loan
A loan secured by a property of the borrower. The amount of equity is the value of the property minus the debt. Home equity loans generally can be used for any reason.

Home Purchase Loan
A loan made for the purpose of buying a house. These loans are secured by the house you are buying.

Home Refinance Loan
Process by which an existing home loan is paid off and replaced with a new loan.

Interest Rate
Amount of money financial institutions charge for letting you use their money. The rate can be either fixed or variable. A fixed rate stays the same throughout the term of the loan. A variable rate might change during the loan term based on the loan contract.

Court order requiring a debtor to pay money to a creditor. A judgment places a security lien on the debtor’s property until the debt is repaid.

Creditor’s claim against property to secure repayment of a debt.

Payday Loan
Short-term loan, typically due on an upcoming payday.

Penalty APR
Your credit card agreement may stipulate that the creditor will permanently increase the
interest rate on your card if you do not pay your bill on time.

Unsecured Loan
A loan not backed by collateral. Credit cards and payday loans are examples of unsecured loans.