Terms to Know Before You Owe

If you're new to borrowing and loans, the terminology may seem overwhelming. We've included a quick list of definitions to help you prepare!

 

• Annual Percentage Rate (APR) - the annual cost of a loan, expressed as a yearly rate.
• Application Fee - (also known as an origination fee) fee charged by a lender to cove the cost of processing a loan.
• Collateral -  An asset (such as a car or home) that guarantees the repayment of a loan. The borrower risks losing the asset if the loan is not repaid according to the terms of the loan contract.
• Co-signer - an individual who will assume responsibility for repayment of the loan in the event the borrower does not pay.
• Down Payment - initial amount paid at time of purchase to reduce the amount of the loan.
• Installment Loan - a loan repaid over time with a specific number of regular payments (i.e. auto loan)
• Interest - an amount, calculated as a percentage of the loan amount, that is charge for borrowed money.
• Principal - the initial amount borrowed.
• Revolving Credit - type of loan that does not have a fixed number of payments, the amount owed is based on the outstanding balance (i.e. credit card)
• Term - the length of time, usually expressed in months, the borrower must repay the loan.