Credit and Loans

credit/loan

money that is borrowed

Credit Score

An assigned number to signal to lenders a person's ability to repay a loan

Credit Report

A detailed document of an individual's credit history

credit card

A plastic card used to make purchases now and pay for them later.

interest

A sum paid or charged for the use of money or for borrowing money

APR

Annual percentage rate; the annual rate of interest that is charged for using credit

mortgage

a specific type of loan that is used to buy real estate

FHA loan

a government-sponsored loan that requires a 3.5 percent down payment and offers additional protections for buyers. Only requires a 57% debt to income ratio

debt-to-income ratio

A standard tool that calculates whether a borrower will have difficulty meeting his or her loan repayment obligation.

Conventional Loan

a mortgage agreement that does not have government backing and that is offered through a commercial bank or mortgage broker. Comes in 15 year, 20 year and 30 years. The interest rate is fixed for the term of the loan. Minimum down payment is 3% but 20% avoids PMI

PMI (Private Mortgage Insurance)

Insurance that protects the lender in case the borrower defaults and is unable to repay the loan. Generally a borrower must pay PMI if their equity is less than 20% of the home's value.

Ramsey Mortgage Rule

20% down on 15 year fixed rate mortgage

VA loan

A mortgage loan on approved property made to a qualified veteran by an authorized lender and guaranteed by the Department of Veterans Affairs in order to limit the lender's possible loss. No Down Payment needed

Good debt vs. bad debt

Good Debt - Debt that can make you an more money (increased salary from more education, Real estate investment, etc.)

Bad Debt - Debt that causes you to lose money

subsidized loans

type of federal student loan which the government pays the interest that accrues while student is in school.

Unsubsidized Loan

A non-need-based loan from the federal government the interest of which is paid for by the borrower while in school

Deferment of Loan

Period during which the repayment of the loan is suspended because the borrower meets certain eligibility requirements (e.g., enrolled in college at least half time).

forbearance of loan

Temporary relief of payments however interest still accrues.

student loan

Money borrowed to pay for education. This money must be paid back. The best loans have deferred interest. That means interest does not start building until the education period is complete.

Payday Loan

a relatively small amount of money lent at a high rate of interest on the agreement that it will be repaid when the borrower receives their next paycheck.

Special Financing

For more high end products that are difficult for the consumer to pay for upfront, companies will offer a financing promotion to encourage the sale by lowering the finance charges normally associated with purchasing on credit. Often offered at 0% interest over a set period of months

HELOC

Home Equity Line of Credit - Uses the equity(Balance paid) on your mortgage as collateral on the loan. If the loan is not paid the bank can take one's home. Typically offers the lowest interest rate on the market.

Public student loan forgiveness

Student loans will be forgiven after 10 years of minimum payments AND full time employment at non profit institution. Applies to jobs such as Healthcare, Education, Public Services, etc.

SAVE

The new Biden Administration student loan plan that lowers monthly payments based on income and will offer forgiveness after 25 years of payments

Principal

The amount of money borrowed

Collateral

Something that is given up if a loan is not repayed. For example a house on a HELOC