Personal loan glossary
Plain-language explanations of the terms you'll see in loan agreements, credit reports, and lender disclosures.
Submitting your information will not affect your credit score. Lender criteria, terms, and rates vary.
A
ACH
ACH (Automated Clearing House) is the electronic funds transfer network that handles most US bank-to-bank transactions, including direct deposits, bill payments, and loan disbursements. ACH transac...
Alternative Credit Data
Alternative credit data refers to information used to evaluate creditworthiness that doesn't come from the three major credit bureaus. Common sources include bank account transaction history, rent ...
Amortization
Amortization is the process of paying off a loan in equal scheduled payments over time, where each payment combines principal and interest. Early in the loan, most of each payment goes to interest;...
Amount Financed
The amount financed is what you actually receive from the lender after any fees deducted at signing. On a loan with no fees, the amount financed equals the loan amount. On a loan with a $50 origina...
APR
APR (Annual Percentage Rate) is the cost of a loan expressed as a yearly percentage that includes both the interest rate and most fees. It's the number federal law requires lenders to disclose befo...
C
Cash Advance
A cash advance is a withdrawal of cash against your credit card's available limit. Unlike credit card purchases, cash advances typically have a higher APR (often 25-30%), an upfront fee of 3-5%, an...
Charge-off
A charge-off is when a lender writes off a debt as a loss for accounting purposes, typically after 120-180 days of non-payment. It does NOT mean the debt is forgiven — you still legally owe it. Aft...
Co-signer
A co-signer is a person who agrees to be equally responsible for a loan along with the primary borrower. If the primary borrower fails to pay, the co-signer is legally obligated to repay. Co-signer...
Collateral
Collateral is an asset pledged to secure a loan. If the borrower defaults, the lender can claim the collateral to recover the debt. Collateral can be physical (a car, a piece of jewelry) or financi...
Collection Account
A collection account is a debt that has been sent to or sold to a third-party debt collector after the original lender stopped trying to collect directly. Collection accounts appear separately on y...
Credit Bureau
A credit bureau is a company that collects, maintains, and reports consumer credit data to lenders. The three major bureaus in the US are Equifax, Experian, and TransUnion. Lenders report payment a...
Credit Card
A credit card is a revolving line of unsecured credit. The issuer sets a credit limit, you can charge purchases up to that limit, and you're required to pay at least a minimum amount each month. Un...
Credit Report
A credit report is a detailed record of your credit history maintained by each of the three major credit bureaus (Equifax, Experian, TransUnion). It includes your open and closed accounts, payment ...
Credit Score
A credit score is a three-digit number, typically between 300 and 850, that summarizes your credit history into a single risk indicator. Lenders use it to decide whether to extend credit and at wha...
Credit Union
A credit union is a member-owned, nonprofit financial cooperative that provides banking and lending services. Because they don't pay shareholders, credit unions can offer lower loan rates and bette...
Credit Utilization
Credit utilization is the percentage of your available credit that you're currently using. It's calculated by dividing your total credit card balances by your total credit limits. Credit utilizatio...
D
Debt-to-Income Ratio
Debt-to-income (DTI) ratio is the percentage of your gross monthly income that goes to debt payments. Lenders use it to evaluate whether you can afford additional debt. Front-end DTI counts only ho...
Default
Default is a borrower's failure to meet the terms of a loan agreement, typically by missing payments. Most lenders treat an account as in default when payments are 90+ days past due, though the exa...
Delinquency
A delinquency is a missed or late payment on a debt. Lenders typically report delinquencies to credit bureaus once a payment is 30+ days past due, with subsequent reports at 60, 90, 120, and 150 da...
F
FDCPA
The Fair Debt Collection Practices Act (FDCPA) is the federal law governing third-party debt collectors. It prohibits abusive collection tactics including harassment, deception, and unfair practice...
FICO Score
FICO Score is the credit scoring model developed by Fair Isaac Corporation, used by about 90% of US lenders for credit decisions. The score ranges from 300 to 850, with higher numbers indicating lo...
Finance Charge
The finance charge is the total dollar cost of borrowing, including all interest and fees you'll pay over the life of the loan. It's one of the federally required disclosures on every consumer loan...
I
Installment Loan
An installment loan is a closed-end loan where you receive a lump sum upfront and repay it in equal scheduled payments over a set term, usually 3 to 24 months for subprime borrowers. Each payment c...
Interest Rate
An interest rate is the cost of borrowing the principal amount, expressed as a percentage. Unlike APR, the interest rate doesn't include fees. It's the number used to calculate how much interest ac...
P
PAL Loan
A PAL (Payday Alternative Loan) is a small-dollar loan offered by federal credit unions under National Credit Union Administration rules. APR is capped at 28%, application fees at $20. PAL I offers...
Payday Loan
A payday loan is a short-term, high-cost loan repaid in a single lump sum on the borrower's next payday, usually 14 days after origination. Loan amounts typically range from $100 to $1,000. Annuali...
Personal Loan
A personal loan is an unsecured installment loan that can be used for nearly any purpose, including debt consolidation, medical bills, home repairs, or major purchases. You receive a lump sum and r...
Pre-qualification
Pre-qualification is a preliminary loan offer based on a soft credit pull and basic information you provide. It gives you an estimate of the amount, APR, and term a lender would offer you, without ...
Prepayment Penalty
A prepayment penalty is a fee a lender charges if you pay off a loan before the scheduled term ends. Prepayment penalties are rare on personal installment loans (and banned in many states) but more...
Principal
Principal is the amount of money you originally borrowed, not including interest or fees. As you make payments on an amortizing loan, the principal balance decreases — the rate at which it decrease...
S
Secured Loan
A secured loan is backed by collateral — an asset the lender can claim if you default. Common secured loans include mortgages (collateral: your house), auto loans (collateral: your car), and pawn l...
Soft Inquiry
A soft inquiry (or 'soft pull') is a credit check that doesn't affect your credit score. Soft inquiries happen during pre-qualification offers, employer background checks, your own credit monitorin...
T
TCPA
The Telephone Consumer Protection Act (TCPA) is a federal law that restricts how businesses can contact consumers via phone, text, and pre-recorded messages. For lead-generation lending sites, TCPA...
TILA Disclosure
The TILA disclosure (or 'TILA box') is the federally required disclosure box that must appear on every consumer loan agreement before you sign. It shows four key numbers: the APR, the finance charg...
Total of Payments
Total of payments is the sum of every scheduled payment on a loan — the total dollar amount you'll pay over the full term if you make all payments on schedule. It equals the amount financed plus th...
Tribal Loan
A tribal loan is a loan issued by a Tribal Lending Entity (TLE) — a business owned by a federally recognized Native American tribe and operating under tribal law rather than state law. Because of t...
U
Underwriting
Underwriting is the lender's process of evaluating your loan application to decide whether to approve it and on what terms. It typically combines an automated risk model (which scores your file bas...
Unsecured Loan
An unsecured loan is a loan that doesn't require collateral. The lender approves you based on creditworthiness — credit score, income, debt-to-income ratio, employment history — rather than an asse...
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