Financial Terms Glossary

Auto Lease
An auto lease is a financial arrangement that enables an individual to obtain a vehicle for use without paying for it entirely. They get access to the vehicle for a certain term (usually two to five years) and then return the vehicle at the end of that period, sometimes with an option to buy it outright. Read more about Auto Lease.
Auto Loan
An auto loan is a loan that person takes out in order to purchase a motor vehicle. Auto loans are typically structured as installment loans and are secured by the value of vehicle being purchased. Read more about Auto Loan.
Bad Credit
“Bad credit” means a borrower has a low credit score. Any score between 300 and 630 is generally considered bad. Late payments, bankruptcy, and maxing out a credit card can all contribute to a lower credit score, and bad credit. Read more about Bad Credit.
Credit Cards
A credit card is a plastic card issued by banks, businesses, and other financial institutions that enables a borrower to make purchases "on credit" and pay for them at a later date. Read more about Credit Cards.
Debt Trap
A debt trap is a situation in which a borrower is led into a cycle of re-borrowing, or rolling over, their loan payments because they are unable to afford the scheduled payments on the principal of a loan. These traps are usually caused by high-interest rates and short terms. Read more about Debt Trap.
Direct Deposit
Direct deposit is a payment method in which funds are transferred electronically to a recipient’s account. Read more about Direct Deposit.
Direct Loan
A direct loan is a loan made directly from a lender to a borrower, rather than through a third party. Read more about Direct Loan.
A dividend is a portion of a company’s earnings that is paid out to its shareholders. These payments can be made through cash, shares of stock, or other property. Dividends can also be issued by investment funds. Read more about Dividend.
Down Payment
A down payment is an initial payment made on a large purchase, often expressed as a percentage of the total cost. The down payment is paid in full up front while the remaining cost is paid in installments, often through a loan. Read more about Down Payment.
Down Payment
A down payment is an initial payment on an expensive good or service, such as a house or car. The down payment is only a percentage of the full purchase price while the remaining cost is usually paid in monthly installments. Read more about Down Payment.
Finance Charges
A finance charge is any charge related to a loan. Read more about Finance Charges.
Fixed Rate
A fixed rate is an interest rate on a loan that will remain the same over the course of the loan, so the amount the borrower pays in interest never changes. Read more about Fixed Rate.
Foreclosure occurs when you fail to pay the mortgage on your home. The lender seizes your property, evicts you, and sells the home. Read more about Foreclosure.
Interest is the cost of borrowing money. When you take out a loan or use a credit card, you'll be required to pay back a specified amount in addition to what you borrowed. That amount is the interest. When you lend money or save money in certain bank accounts, you gain interest. Read more about Interest.
Interest Rate
An interest rate is the percent of a principal loan amount that is charged to the borrower. For instance, if you borrow $100 at an interest rate of 20%, then you will pay back $100 plus another $20 of interest. Having a good credit score will make it easier to find lower interest rates. Read more about Interest Rate.
An investment means spending money on something now, with the hopes that it will make you money in the future. Getting a college degree, buying stock, and buying a home are all considered investments. Read more about Investment.
The Internal Revenue Service, better known as ‘The IRS’, is a bureau of the Department of the Treasury charged with collecting taxes, enforcing the nation’s tax laws and administering the Internal Revenue Code. Read more about IRS.
Any person or company that offers money to people with the expectation that it will be paid back. Banks, credit unions, and loan companies are all lenders. Read more about Lender.
Line of Credit
A line of credit is a flexible loan that grants a borrower access to money (up to a specified maximum amount determined by the bank or lender). Interest is only charged on the money that the borrower chooses to use. Read more about Line of Credit.
Loan Fee
A loan fee is any fee associated with a loan or credit card that does not include the interest rate. Read more about Loan Fee.
Loan Forgiveness
Loan forgiveness means you are no longer expected to repay your loan. Certain circumstances might lead to forgiveness, cancellation, or discharge of your outstanding federal student loan balance. Read more about Loan Forgiveness.
A microloan is a loan for small businesses. Read more about Microloan.
A mortgage is a loan to finance the purchase of your home or property—it’s likely the largest debt you will ever take on. In exchange for the money received by the homebuyer to purchase the property, the bank or mortgage lender will get the promise that you will slowly pay the money back, with interest, over a designated period. Read more about Mortgage.
NSF Fees
NSF stands for “Non-Sufficient Funds.” An NSF Fee is charged when a bank account does not have enough money in it to honor a check drawn on that account. Read more about NSF Fees.
Online Loan
An online loan is a loan acquired through the internet. There are many different kinds of online loans. Some of them are safe, while others are not. Read more about Online Loan.
Origination Fee
An origination fee is a fee charged by a lender to the borrower at the time a loan is provided to cover the costs of processing the loan. Read more about Origination Fee.
Overdraft Fees
An overdraft fee is a penalty banks charge an individual for making purchases that cannot be covered by the funds in their account. Read more about Overdraft Fees.
Overdraft Protection
Overdraft Protection is a service offered by banking institutions on their checking accounts that covers an account holder's transaction even if their account lacks sufficient funds. Overdraft protection can be a line of credit or a link to an additional account or credit card. They come with additional fees and/or interest. Read more about Overdraft Protection.
Pawn Shops
A pawn shop is an online or storefront business that offers small-dollar loans. Borrowers pledge personal property as collateral that the pawn shop holds and sells if the loan isn’t repaid. Pawn shops are often associated with predatory lending practices. Read more about Pawn Shops.
Peer to Peer Lending
Peer-to-peer lending is a type of lending in which you get a loan from an individual—not a bank or financial institution. It is also known as P2P lending, person-to-person lending, or social lending. Peer-to-peer lending is most commonly done online. Read more about Peer to Peer Lending.
Personal Debt
Personal Debt (which is sometimes referred to "Consumer Debt") is any financial obligation that is owed by an individual or a household, as opposed to by a business or government. Read more about Personal Debt.
Personal Loan Agreement
A personal loan agreement is a written contract between two private parties, usually friends or relatives, that details a personal loan arrangement between the two. This usually includes the date of the loan transaction, the projected repayment date, the amount of money borrowed, and any interest rate or other stipulations. Read more about Personal Loan Agreement.
Predatory Lenders
Predatory lenders are financial institutions that use deceptive practices and unreasonable terms to profit off of borrowers in desperate need of funds. Read more about Predatory Lenders.
Prepayment Penalties
A prepayment penalty is a fee charged by lenders when borrowers pay off their loan before the end of the term. Read more about Prepayment Penalties.
Prime Rate
The prime rate is the interest rate that banks charge borrowers who are the most trustworthy, or creditworthy, based on their borrowing history. Read more about Prime Rate.
The principal is the amount of money that is borrowed through a loan. The term also refers to the amount of money that is left on the loan after payments have been made. Read more about Principal.
Private Loans
A private loan is a loan made by a non-federal institution such as a bank, school or state agency. The distinction most commonly applies to student loans. Private loans are often more expensive than federal loans and come with less-flexible payment terms. Read more about Private Loans.
To refinance a loan means to take out a new loan with better interest rates to replace an old loan. It is most common used in reference to home mortgage loans but can apply to any kind of loan. Read more about Refinance.
To refinance means to take out a new loan to pay off an existing one, usually in order to get better interest rates or repayment terms. Read more about Refinance.
To refinance a loan is to take out a new loan with more favorable terms to replace your old loan. This can result in lower monthly payments, lower interest rates and free up additional cash. However, it can also significantly extend the repayment period. Read more about Refinancing.
Repossession occurs when you fail to make loan payments and your collateral is seized. Your lender can then sell your collateral to recoup the money you owe. Read more about Repossession.
Reverse Mortgage
A reverse mortgage is a type of loan available to homeowners 62 years of age or older to convert part of the equity in your home into cash. The equity you have built up over the years of paying your mortgage payments can be paid to you and does not require selling your home or paying additional monthly bills. Read more about Reverse Mortgage.
To "rollover" a loan means to extend the loan's due date by paying an additional fee. Loan rollover is most common with short-term payday and title loans, and is the way that some borrowers become trapped in a cycle of debt. Read more about Rollover.
Second Mortgage
A second mortgage occurs when a borrower with an existing mortgage loan takes out a second one. As with the first mortgage, the borrower’s home is used as collateral. Read more about Second Mortgage.
Soft Credit Check
A soft credit check—also known a soft inquiry or soft pull – is a way to obtain information from a person's credit report without impacting their credit score. Unlike hard inquiries, which are recorded on your credit report and can negatively affect your score, soft inquiries do not require an individual’s authorization before they can be run. Read more about Soft Credit Check.
Student Loans
Student Loans are loans taken out to finance an individual's education. Student Loans can be obtained from both the federal government and private lenders. Read more about Student Loans.
Subprime Lending
Subprime lending is a category of money lending that provides loans to borrowers with bad credit. Because the borrowers are deemed less likely to repay, the loans typically carry higher interest rates than those offered to borrowers with good credit. Read more about Subprime Lending.
The term of a loan is the pre-determined amount of time before the loan must be paid back in full, plus interest. Term can also refer to the conditions under which a loan is made, including the interest rate, monthly payment amount, and associated fees or penalties. Read more about Term.
Title Loans
A title loan is a short-term loan that requires borrowers to offer their vehicle title as collateral. Title loans generally carry high-interest rates in addition to the risk of borrowers losing their vehicle if they’re unable to repay the loan. Read more about Title Loans.
Variable Rate
Variable rates are interest rates that change periodically over the life of a loan. The rate can go up or down based on market conditions. Read more about Variable Rate.
Wage Garnishment
Wage garnishment is a legal tool that allows a lender, legal entity or institute to take money directly from your paychecks to cover debts you owe. Read more about Wage Garnishment.