Glossary

The words lenders use, in plain English.

Each definition is short and general. The agreement for your own loan sets what its terms mean in practice.

Terms, A to C

A to C

Amortization: A schedule in which fixed payments repay a loan over time. Each payment covers the interest that has built up first, and the rest reduces the principal.
APR (annual percentage rate): The yearly cost of borrowing, shown as a rate. It often includes certain fees along with interest, so read the disclosure to see what is counted.
Collateral: Property pledged to secure a loan. If the loan is not repaid as agreed, the lender may be able to claim it, as the agreement allows.
Co-signer: A person who signs the loan agreement and becomes responsible for the debt alongside the main borrower, whether or not they receive the money.

Terms, D to F

Default: Failing to meet the terms of a loan, such as missing payments. The agreement defines what counts as default.
Escrow: In home lending, an account where part of each payment is held to pay property taxes and insurance when they fall due.
Finance charge: The total dollar cost of credit as the lender discloses it, including interest and certain fees.
Origination fee: A charge for processing a new loan, often stated as a percentage of the amount borrowed. Ask whether it is paid up front or added to the balance.

Terms, I to L

Interest: The price of using someone else's money, usually a yearly percentage of the balance still owed.
Lien: A legal claim against property that secures a debt until the debt is paid.
Loan term: The period over which the loan is scheduled to be repaid, usually stated in months or years.

Terms, P to R

Prepayment penalty: A charge some agreements impose for paying off a balance early. Not every loan has one, so check the agreement.
Principal: The amount borrowed, not counting interest. It is also the part of a balance that is not interest.
Recourse: The lender's right to pursue a borrower beyond the collateral if the loan is not repaid. Its scope depends on the loan type and where the borrower lives.

Terms, S to U

Secured loan: A loan backed by collateral, which gives the lender a defined asset to claim if the loan is not repaid as agreed.
Underwriting: The lender's review of an application, including income, existing debts, and credit history, to decide whether to lend and on what terms.
Unsecured loan: A loan not backed by a pledged asset. The agreement still sets the consequences of default.

These definitions are general explanations, not financial, legal, or medical advice. Your agreement sets the meaning of its own terms.