Chapter 7

Consumer Loans

Formal contracts specifying the loan amount and repayment terms for larger purchases.

Single-Payment Loan

A loan that is paid back in a single lump-sum payment at maturity.

Installment Loan

A loan that requires regular payments of both interest and principal until a preset date.

Secured Loan

A loan guaranteed by a specific asset, which can be seized if the borrower defaults.

Unsecured Loan

A loan that does not require collateral and is based on the borrower's creditworthiness.

Fixed-Interest-Rate Loan

A loan with a constant interest rate throughout its term.

Variable-Interest-Rate Loan

A loan whose interest rate can change over time, based on market conditions.

Home Equity Loan

A secured loan that uses the equity of a home as collateral.

Truth in Lending Act

A federal law requiring lenders to disclose the total cost of borrowing, including interest and fees.

Annual Percentage Rate (APR)

The annual cost of a loan expressed as a percentage of the loan amount, including interest and fees.

Loan Amortization

The process of paying off a loan over time through regular payments.

Debt Limit Ratio

A measure of the percentage of take-home pay used for nonmortgage debt payments; ideal is below 15%.

Rule of 78s

A method for calculating the amount of interest avoided when paying off a loan early.

Deferment

Postponing loan payments for a specified period due to qualifying circumstances.

Forbearance

Temporarily stopping payments on a loan, with interest continuing to accrue.

Student Loan

A type of loan specifically designed to help students pay for their education.

Fixed-Rate Student Loan

A student loan with a stable interest rate throughout the repayment period.

Direct Subsidized Loan

A federal student loan for undergraduates with financial need, where the government pays interest while in school.

Direct Unsubsidized Loan

A federal student loan for students who do not demonstrate financial need, with accruing interest while in school.

Parent PLUS Loan

A federal loan available to parents of dependent undergraduate students to help pay for college.

Bankruptcy

A legal proceeding involving a person or business that is unable to repay their outstanding debts.

Accelerating Clause

A clause in a loan contract that allows the lender to demand full repayment if the borrower defaults on a payment.

Insurance Agreement Clause

Clause requiring the borrower to maintain insurance on collateral for the loan.

Payday Loan

A short-term, high-interest loan typically due on the borrower's next payday.

Credit Counsellor

A professional who helps individuals manage their debt and create a repayment plan.

Loan Servicer

An organization that manages the loan's payment processing and customer service.

Debt Consolidation Loan

A loan that combines several debts into one, often with a lower interest rate.

Financial Aid Shopping Sheet

A tool provided by schools to help students compare college costs and financial aid offers.