Banking, Credit, Public Debt, and Monetary Systems Vocabulary

Vocabulary terms covering credit mechanisms, loan instruments, interest types, defaults, and public debt based on Economics L2S3 lecture materials.

Credit

The provision of resources (such as granting a loan) by one party (creditor/lender) to another party (debtor/borrower) where the second party does not immediately pay in full, thereby generating a debt, and arranges to pay or return those resources at a later date.

Arrears (Arrearages)

A legal term for a type of debt that is overdue after missing an expected payment, accruing from the date on which the first missed payment was due.

Cash Credit

An account with a bank by which a person, having given security for repayment, draws at pleasure upon the bank up to an agreed-upon amount.

Export Credit Agency (ECA)

A national, public, or publicly-mandated agency (such as COFACE in France) that supports domestic companies by offering government-backed loans, guarantees, and trade credit insurance covering commercial and political risk.

Frozen Credit Markets

A market condition where credit is extremely difficult to obtain even for entities with excellent credit histories, resulting in loan denials, lowered credit limits, and mortgage inaccessibility.

Microcredit (Microloan)

The extension of very small loans to the unemployed, poor entrepreneurs, and individuals living in poverty who lack collateral, steady employment, or verifiable credit histories.

Revolving Credit

A type of credit—such as a credit card—that does not have a fixed number of payments, contrasting with installment credit.

Secured Loan

A loan where the borrower pledges an asset (such as a car or property) as collateral, allowing the creditor to seize and sell the asset if the borrower defaults.

Bridge Loan (Swing Loan / Swing-line Credit)

A short-term loan used to cover the gap when purchasing a new home before the proceeds from selling an existing home are available, using the current home as collateral.

Swap

A financial derivative wherein two counterparties agree to exchange cash flow streams (known as 'legs'). The five generic types are interest rate, currency, credit, commodity, and equity swaps.

Service a Debt

The act of making scheduled payments covering both the principal and interest on outstanding loans.

Default

A situation where a debtor fails to make a required debt payment.

Insolvency

A legal condition denoting that a debtor is unable to pay their debts.

Bankruptcy

A legal finding that places court supervision over the financial affairs of individuals or organizations that are insolvent or in default.

Foreclosure

A legal process triggered by loan default (typically a mortgage) allowing a lender to repossess and sell the secured property to recover the outstanding loan balance.

IOU

An informal written note acknowledging a personal debt (derived from 'I owe you' or 'I owe unto'), typically used between acquaintances.

Variable-Rate Loan

A loan where the interest rate changes periodically based on movements in a benchmark rate, such as the prime rate or LIBOR.

Deferred / Outstanding Interest

Unpaid interest that has accrued on a loan up to the most recent accrual date, commonly the end of the previous month.

Fixed Interest Rate Loan

A loan in which the charged interest rate remains constant throughout the specified fixed-rate period.

Indebtedness

The legal or financial obligation to pay money to another party.

Installment Credit

A credit arrangement featuring a predetermined, fixed number of equal repayments over time, unlike revolving credit.

Freddie Mac (FHLMC)

The Federal Home Loan Mortgage Corporation, a US government-sponsored enterprise established in 1970 to purchase mortgages, pool them, and sell them as mortgage-backed securities to enhance secondary market liquidity.

Loan Collateral

An asset or piece of property acceptable to a lender as security for repayment of a loan.

Loan Maturity

The lifespan of a loan or total duration until the final payment is due and the debt is fully retired (e.g., a 30-year maturity period).

Mortgage Loan

A specific secured loan structure where real property (such as real estate or a house) serves as the pledged collateral.

Personal Property (Movables)

Any movable private property, distinguished from fixed real property or real estate.

Loan-Sharking

The practice of providing unsecured loans at exorbitantly high interest rates, frequently enforced through coercion, blackmail, or violence.

Principal

The original baseline sum of money borrowed, lent, or invested, separate from interest or fees.

Rescheduling of a Debt

Modifying loan terms by lengthening loan maturity to provide repayment relief to a borrower.

Usurer

An individual who lends money at unlawfully or exorbitantly high interest rates.

National Debt

The total volume of outstanding money owed by any level of government (central, federal, municipal, or local), distinct from an annual deficit.

Bail Out

An injection of fresh liquidity given to a bankrupt or near-bankrupt institution (such as a corporation or bank) by a government or consortium to satisfy immediate obligations.

External Debt

The portion of a country's cumulative debt that is owed directly to foreign creditors outside that country.