Guide to Loan terms

John Mussi Listed below is a guide to loan terms. It is a useful list of definitions of loan terms that may or may not be familiar to you. Keep it nearby as you will never know when you might need it for quick reference.

Accrue
Process in which interest accumulates on a borrower's loan.

Amortization
A repayment method in which the amount you borrow is repaid gradually though regular monthly payments of principal and interest over the term of the loan.

Annual Percentage Rate (APR)
The APR shows the cost of a loan expressed as a yearly interest rate, including the interest and other fees associated with the loan.

Application
First step in the official loan process to gather and record information about the potential borrower.

Borrower
Person who has been approved to receive a loan and is then obligated to repay it.

Capitalization
Adding unpaid accrued interest to the principal balance. Capitalizing interest increases the principal amount of the loan and the total cost of the loan.

Collateral
Property pledged as security for a loan to ensure repayment of a loan.

Credit Agencies/Credit Bureaus
Organizations that collect individual consumer credit information and provide credit reports to potential lenders.

Credit History
History of an individual's debt repayment. For most types of loans, lenders use this information to gauge a potential borrower's ability to repay a loan.

Credit Rating
Grade assigned to denote the net worth and credit standing of an individual or a business.

Credit Report
Record that lists all past and present debts and the timeliness of their repayment and documents an individual's credit history.

Debt
Amount owed to another that must be repaid.

Default
Failure to repay a loan according to the terms of the loan.

Delinquency
Failure of a borrower to make a timely payment on a loan.

Interest
Fee charged for the use of money.

Interest Rate
The amount of interest charged on a loan, usually expressed as a percentage.

Lender
Entity that provides loan funds to the borrower. Depending on the type of loan, the lender may be a bank or other financial institution.

Loan
Money borrowed from a lending institution, usually repaid with interest.

Loan Applicant
Party applying to the lender for a loan.

Note
Binding legal document you sign when you get a loan. It lists the conditions under which you're borrowing and the terms under which you agree to pay back the loan (also called a promissory note or a mortgage note).

Payment
Periodic (usually monthly) instalments paid to a lender to be applied toward repaying your loan.

Principal
Loan amount borrowed from a lender, not including interest or additional fees.

Repayment
Process of paying back borrowed money.

Term
Time limit within which a loan must be repaid.

Variable Interest Rate
Interest rate that changes periodically in relation to an index. Payments may increase or decrease accordingly.

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About the Author

John Mussi is the founder of Direct Online Loans who help UK homeowners find the best available loans via the www.directonlineloans.co.uk website.