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

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

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

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

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.