Personal Finance: Credit Terms

Principal

amount of money borrowed or invested, excluding interest.

Interest Rate

the percentage of a loan or investment charged as interest for its use.

Term

the length of time over which a loan is repaid or an investment is held.

Secured Loan

a loan backed by collateral that reduces the lender's risk.

Unsecured Loan

a loan not backed by collateral, meaning higher risk for the lender.

Co-Signer

a person who signs a loan with the borrower, agreeing to take responsibility for the debt if the borrower fails to repay it, thus reducing the lender's risk.

Variable Rate Loan

a loan with an interest rate that can fluctuate over time based on market conditions, typically leading to varying monthly payments.

Installment Loan

a type of loan repaid over time with a set number of scheduled payments, usually consisting of both principal and interest.

Revolving Credit

a type of credit that allows borrowers to borrow up to a certain limit and pay it off over time, with the option to borrow again as needed, typical in credit cards.

Fixed Rate Loan

a loan with an interest rate that remains constant throughout the life of the loan, resulting in predictable monthly payments.

Credit Score

a numerical representation of a borrower's creditworthiness, calculated based on credit history and other financial behaviors.

Grace Period

the time after the due date during which a borrower can pay without accruing late fees or penalties, typically offered with credit card payments.

Schumer Box

a standardized table that provides clear information about the terms and costs of a loan or credit card, including interest rates, fees, and other key features.

Cash Advance

a loan against a credit card's available credit, allowing the cardholder to withdraw cash, typically at a higher interest rate and with fees.

Amortization Table/Graph

a tool that illustrates the breakdown of each loan payment into principal and interest over time, showing how much of each payment reduces the remaining balance.

Credit Report

a detailed record of an individual's credit history, including their borrowing and repayment activities, used by lenders to assess creditworthiness.

Payday Loan

a short-term, high-cost loan typically due on the borrower's next payday, used to cover urgent expenses.

Late Payment

a payment that is made after the due date, which can result in fees and negatively impact credit scores.

Minimum Payment

the least amount a borrower must pay on their credit card balance each month to avoid late fees and keep the account in good standing.

Credit Limit

the maximum amount of credit that a lender allows a borrower to use on a credit card or loan.

Outstanding Balance

the total amount of money owed on a credit card or loan, including principal and interest.

PMI

rivate Mortgage Insurance, which protects lenders if the borrower defaults on a loan.