Loan Terms Explained
Common terms you may encounter when reviewing a loan request or offer.
ACH
Automated Clearing House, a network used for electronic bank transfers. A lender may offer ACH for funding or authorized repayments.
Annual percentage rate (APR)
The cost of credit expressed as a yearly rate, including interest and certain fees. It is different from the interest rate alone.
Automatic payment
A payment taken on an agreed schedule under an authorization. Check the amount, date and cancellation terms.
Balance
The amount currently owed on an account or loan.
Collateral
An asset pledged as security for a loan. It may be at risk if the borrower does not repay.
Co-signer
A person who agrees to share responsibility for repayment under the loan agreement.
Credit bureau
A company that collects credit information and provides credit reports.
Credit check
A review of credit information used as part of a provider’s assessment.
Credit report
A record of credit accounts and payment history maintained by a credit reporting company.
Credit score
A numerical assessment based on information in a credit report. Different scoring models may produce different scores.
Debt consolidation
Combining existing debts into a new loan or repayment arrangement. Compare total costs and terms before deciding.
Default
Failure to meet the obligations of a loan agreement.
Delinquency
A payment that is overdue.
Direct deposit
An electronic payment into a bank account.
Electronic signature
An electronic action or mark used to sign an agreement. Review the documents and consent terms before signing.
Finance charge
The cost of credit expressed as a dollar amount in the lender’s disclosures.
Fixed interest rate
An interest rate that stays the same for the period specified in the agreement.
Installment loan
A loan repaid through scheduled payments over an agreed period.
Interest
A charge for borrowing money.
Late fee
A charge that may apply when a payment is not made on time, subject to the agreement and applicable law.
Lender
The person or business that provides the loan.
Loan agreement
The contract setting out the loan amount, charges, repayment terms and obligations.
Loan request
Information submitted for consideration. A request is not an approval or a loan agreement.
Loan term
The period over which a loan is scheduled to be repaid.
Principal
The amount borrowed, excluding interest and fees.
Refinancing
Replacing an existing loan with a new one. The new costs and repayment period may differ.
Renewal or rollover
An arrangement extending or replacing a loan. It may involve extra costs and may be restricted by law.
Secured loan
A loan backed by collateral.
Total repayment
The total amount payable under the loan agreement, including principal and borrowing costs.
Unsecured loan
A loan that does not require an asset to be pledged as collateral.
Variable interest rate
An interest rate that can change under the terms of the agreement.