APR (Annual Percentage Rate)
The Annual Percentage Rate or APR is a percentage value that helps you determine how much the loan or credit will cost you each year for borrowing money. APR differentiates itself from interest rate by including any interest rate and other additional costs such as loan origination or application fees that the lender may charge you on the borrowed amount.
In personal finance terms, an asset refers to any tangible or intangible possessions with economic value that you can convert into cash. Examples of an asset may include your house, vehicle, or equity in your auto, checking and savings accounts, retirement accounts, and any other significant investments.
An auto loan is a type of secured loan used to purchase a new or used vehicle. The lender places a lien on the auto until the loan is paid in full. When the loan is paid off, the lender is removed from the title, and the purchaser will assume full ownership of the vehicle. If the borrower defaults, the lender can lawfully repossess the auto.
Automated Clearing House (ACH)
The automated clearing house (ACH) is an electronic network that allows nearly instant money transfers between financial institutions in the United States. Authorization is needed for any institution to take ACH payments from your bank account. The National Automated Clearing House Association (NACHA) and the Federal Reserve govern the rules and regulations of ACH.
Your available credit is the portion of your credit limit you are left to spend. If your available credit is less than the total credit limit, you can pay off the current balance on the account and increase your available credit. By doing this, you can ensure you have the maximum available funds to withdraw in an emergency.
A balance is a remaining amount of a financial account. It could mean money in your account. Or, it could reflect an amount owed to pay off a loan account with recurring payments, like a personal loan or mortgage.
Bad credit is a term that describes a low credit score, generally below 620 on a scale of 300-850. Having bad credit might make you appear more likely to fail to make timely payments in the future and less creditworthy to lenders.
Bankruptcy is a legal procedure associated with individuals or businesses who are no longer in a position to repay their outstanding debts. The bankruptcy process provides debtors with a method of relief from obligations they cannot pay. It is important to remember that bankruptcy does eliminate all types of debts.
A billing cycle, also referred to as a billing period or a statement period, is the interval between the previous statement's closing date and the current one. Though the billing cycle duration can vary from one creditor to another, most typically range between 20 and 45 days.
A bounced check is a check the bank refuses to pass or honor due to insufficient balance, a signature mismatch, or other reasons. Most banks charge you a penalty if your check bounces.
A budget is a financial planning tool to help you track and regulate your spending based on your income. A budget usually aims to ensure that you don't spend more than a certain amount of your income on specific things each month.
A business day includes all days when businesses conduct their operations. A business day includes Monday through Friday and does not include weekends and national holidays.
A cash advance is a short-term loan offered by some lenders to help borrowers get immediate access to the cash they need, typically until their next paycheck.
Cash Advance Fee
A cash advance fee is a charge for withdrawing funds from your credit card, line of credit, or other financial tools.
As the name suggests, a cash loan is a type of personal loan that you can use to cover sudden unexpected expenses. You can apply for a cash loan during a cash emergency as they are said to process quickly and help you get funds instantly.
Charges are compensation you pay to lenders for providing funds or extending credit. Charges may include cash advance charges, interest charges, and handling charges. The Truth in Lending Act requires all lenders to disclose their penalty fees, interest rates, and standard fees to you.
Collateral is any property of value that you can pledge as security to qualify for a loan. A loan with collateral reduces the risk of default for the lender. Using collateral gives your lender the right to take the property's ownership if you cannot repay the loan.
A co-signer is a secondary signee added to an application for a loan, line of credit, or credit card. A co-signer assumes the responsibility for repayment if an issue arises with the primary borrower. Co-signers typically have a better financial profile than the primary borrower. If a lender allows, you can use a co-signer to increase your chances of getting approved for a loan.
A credit bureau is an agency that maintains individuals' financial information and payment history to generate their credit reports and credit scores. There are many credit bureaus, but Equifax, Experian, and TransUnion are the three major credit bureaus in the United States. Credit Bureaus use different credit scoring models, and your credit score from each credit bureau may differ.
A credit check determines if you are trustworthy enough to receive funding. A creditor or lender looks at your credit report or credit score. They are available in two forms: a soft credit check that does not affect your credit or a hard credit check or inquiry that can lower your score.
Your credit history is a record of how you have repaid loans or credit purchases. Positive credit history will be a large portion of your credit score.
You will usually come across the term credit limit when you take out a line of credit, loan, or credit card. It represents the maximum amount a borrower can withdraw or use from their credit line. Since most lenders set your credit limit based on your credit history and income, you might have the option to increase or decrease your credit limit.
A credit report is a statement that summarizes all your current and previous credit activities. Credit bureaus produce reports based on information they receive from different lenders, creditors, or other financial institutions. Your payment history is considered an integral part of your credit report.
A credit score is a numerical representation of your creditworthiness derived from the information in your credit report. Most credit scores range between 300-850 scale, with a score of 850 being an exceptional score. There are three major credit reporting bureaus in the U.S.: Equifax, Experian, and TransUnion. Each bureau calculates a credit score for you based on the information reported to them by various financial institutions.
Credit utilization is the percentage of credit used from the total available revolving credit. Credit bureaus consider your credit utilization while calculating your credit score. A high credit utilization means you're using a large portion of your available credit that can potentially damage your credit score. Hence, it's better to have a lower credit utilization ratio.
Debt consolidation is the process of taking out a new loan to combine multiple loans into a single payment. Consolidating your loans may help you more easily manage your debts better.
Debt refers to any amount of money that you are obligated to repay.
A direct lender is a bank, or financial institution, that underwrites funds and services a loan. Direct lenders take on the risk of lending to you, and you repay the loan to the lender. You can access direct lenders online or in-store.
Early repayment is paying back your loan before it's due. Many financial institutions and banks charge fees for paying a loan back before the agreed due date.
An emergency fund refers to money set aside to be used only for financial emergencies or unexpected expenses.
Your credit score is fair if you have a FICO® Score of 580 to 669. Sometimes referred to as average credit, fair credit scores fall in the middle of the 300 to 850 range.
FICO Score (Fair Isaac Corporation Scale)
The Fair Isaac Corporation (FICO) scale is one of the most widely used credit scoring models. 90% of top U.S. lenders use it to measure credit risk and make lending decisions. The FICO scale comprises five ranges with credit scores between 300 to 850. The FICO scale ranges are as follows: 300-579 is poor, 580 to 669 is fair, 670 to 739 is good, 740 to 799 is considered very good, and 800 to 850 is an exceptional score.
A finance charge is one of the costs of borrowing money expressed as a dollar amount. A finance charge is often an aggregated cost, including the cost of carrying the debt (interest fees) along with any related application fees, transaction fees, account maintenance fees, or late fees charged by the lender.
Fixed Interest Rate
A fixed-rate interest loan means the rate does not change over the life of the loan. A fixed interest rate will help you avoid the risk of significantly increasing your payment over time.
Good credit is a classification of credit worthiness. FICO® defines a good credit score as a range between 670 to 739. The higher your score, the lower you are a risk to lenders. A good credit score will allow you to qualify for more credit and loan opportunities.
Your gross income consists of all revenue from wages or salary or other forms of income such as dividends, pensions, interest, and rental income.
Interest is the cost of borrowing, which you pay the lender over and above the principal loan amount.
An installment loan is a loan type in which a borrower receives a lump sum amount upfront and then pays back with scheduled payments spread over their loan's term.
A late charge is a fee that you will have to pay for making a late payment.
A licensed lender has a federal and state government license to allow them to lend to you. This license ensures that they operate legally and can be a direct lender.
Line of Credit
A line of credit, also known as a credit line, is a credit option that allows you to borrow money in various amounts up to a pre-approved borrowing limit. Lines of credit can be beneficial during financial emergencies as they save the time of applying for a loan each time you find yourself in urgent need of cash.
A loan is an amount of money you borrow from a lender under the condition that you will repay it. Typically, the amount you pay back includes interest, the fee for borrowing the money, and other fees for processing the loan. The lender sets these terms in your loan agreement. Many loans also have a maturity date, which is the date you must repay the loan.
A loan agreement is a formal contract between you and the lender that outlines the loan terms. This document formalizes the loan duration between you and your lender, including the interest rate, APR, and the repayment period. When you sign a loan agreement, you are responsible for paying back the borrowed money, interest, and fees.
The loan term is the time you have to repay borrowed money. Depending on the conditions of the loan agreement, it can last any number of days up to years. In most cases, interest accrues throughout this repayment period.
If you have a loan, the principal refers to the original amount you borrowed that you must repay.
Net income is often called your "take-home pay," or the amount of your paycheck after deductions. Your pay before deductions is your gross income.
NSF (Non-Sufficient Funds)
Non-sufficient funds (NSF) or insufficient funds is the term used when your bank account lacks the balance needed to cover checks or withdrawals. Your bank returns the "bounced" check to you and charges you an NSF fee.
Online lenders provide services through the internet. They may or may not have a physical storefront. Typically, the lending process involves completing a loan application online, allowing you to access the approved funds quickly if approved.
Any loan in which the borrowing process from origination to disbursement is considered an online loan.
An open-end loan is between you and a lender without an end date or fixed term. They are sometimes referred to as revolving loans since you can withdraw from them repeatedly, as long as you have available credit. A line of credit is an example of an open-end loan.
An origination fee is paid to a lender to cover the costs of initiating and processing your loan.
The outstanding balance refers to your unpaid portion of any installment, credit card, or revolving debt for which you are charged interest over time. A significant outstanding balance can be an indicator of financial trouble.
Payday loans are a type of short-term loan typically due on your next payday. They are also referred to as cash advance loans or check advance loans.
A payment schedule sets the amount and due dates of your required payments under your loan agreement.
Penalty charges are additional charges to the principal after you have defaulted on the terms of your loan, credit line, or bank account agreement.
A personal loan is a loan available for individual persons. Personal loans typically have a predetermined repayment period without having to mention a definitive purpose for borrowing the money. They can be either secured or unsecured.
The term poor credit describes a FICO credit score below 580. A credit score is a significant factor when a lender determines a borrower's credit worthiness.
Depending on your loan agreement, a prepayment penalty is an additional charge assessed on the borrower when a loan is repaid early.
Rate is the percentage your lender uses to determine your loan's interest. The amount you borrow and your rate will determine your loan's cost.
Refinancing, or "refi" for short, occurs when the terms of your existing loans, such as amounts, payment schedules, interest rates, or other terms, are revised. If approved, you sign a new agreement that replaces your original contract.
Revolving credit is a form of open-ended credit that can be used and paid down continuously while the account remains open. This type of credit does not have a fixed number of payments.
A secured loan requires the borrower to use collateral such as a car, a vehicle title, a house, or other collateral, to get a loan.
Soft Credit Check
A soft credit check, also called a soft inquiry, is performed by financial institutions to determine your creditworthiness. It's referred to as "soft" because this credit check does not affect your credit score.
A title loan is a secured loan in which a borrower uses their vehicle title as collateral. A title loan lender usually decides the maximum loan amount based on your vehicle's value.
Whether you are a buyer or a seller, a transaction is a completed agreement between people to exchange services, goods, or financial assets in return for money.
An unsecured loan is a loan that doesn't allow borrowers to use collateral. Lenders offer unsecured loans based on various factors that can help determine your ability to repay the loan.