Loans - Financing Glossary

Annual Percentage Rate (APR)
The cost of credit as a yearly rate. The percentage results from an equation considering the total amount financed, the finance charges, and the term of the loan.

Cosigner
Another person who signs your loan and assumes equal responsibility for it.

Credit Bureau
An agency that keeps your credit record.

Credit Scoring System
A statistical system used to rate credit applicants according to various characteristics relevant to credit-worthiness.

Creditworthiness
Past and future ability to repay debts.

Default
Failure to repay a loan or otherwise meet the terms of your credit agreement.

Delinquency
Failure to make payments on time. This can lead to foreclosure.

Depreciation
Decline in value of a automobile due to wear and tear

Equity
The difference between the fair market value and current indebtedness

Finance Charge
The total dollar amount credit will cost.

Gross Monthly Income
The total amount the borrower earns per month, before any expenses are deducted.

Guarantee
A promise by one party to pay a debt or perform an obligation contracted by another if the original party fails to pay or perform according to a contract.

Interest
A charge paid for borrowing money.

Interest Rate
The annual rate of interest on the loan, expressed as a percentage of 100.

Late Payment
A payment made later than agreed upon in a credit contract and on which additional charges may be imposed.

Lessee
A person who signs a lease to get temporary use of property.

Lessor
A company that provides temporary use of property usually in return for periodic payment.

Lien
A claim upon a piece of property for the payment or satisfaction of a debt or obligation.

Market Value
The highest price that a buyer would pay and the lowest price a seller would accept on a property. Market value may be different from the price a property could actually be sold for at a given time.

MSRP
Stands for Manufacturer's Suggested Retail Price. It represents the manufacturer's recommended selling price for a vehicle and each of its options.

Open-End Credit
A line of credit that may be used over and over again, including credit cards, overdraft credit accounts, and home equity lines.

Open-End Lease
A lease which may involve a balloon payment based on the value of the property when it is returned.

Prepayment
A privilege in a mortgage permitting the borrower to make payments in advance of their due date.

Principal
The amount of debt, not counting interest, left on a loan.

Refinancing
The process of the same mortgagor paying off one loan with the proceeds from another loan. Refinancing is beneficial for the loanee because it usually means a lower interest rate.

Title
A document that gives evidence of an individual's ownership of property.

Truth-in-Lending
A federal law requiring disclosure of the Annual Percentage Rate to applicants shortly after they apply for the loan.

Underwriting
The decision whether to make a loan to a potential applicant based on credit, employment, assets, and other factors and the matching of this risk to an appropriate rate and term or loan amount.

Verification of Employment
A document signed by the borrower's employer verifying his/her position and salary.

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