Definitions

Financial Terms: A – C

ACH (Automated Clearing House)
This secure network allows for electronically transferring funds between bank accounts.

APR (Annual Percentage Rate)
Represents the yearly cost of borrowing, expressed as a percentage. Note: this is not the same as the contractual interest rate.

Asset
Valuable items owned by an individual, often used as collateral for loans.

Balance
The specific amount currently held or owed in a bank or credit account.

Bankruptcy
Federal courts oversee this legal process, allowing individuals unable to repay debts to restructure obligations. It remains on a credit report for up to 10 years.

Budget
Planning income, spending, and savings helps manage finances effectively.

Caps
Limits on how much the interest rate can increase on an adjustable-rate mortgage.

Cash Advance
Short-term loans intended to cover urgent expenses until the next payday. Typically, interest begins accruing immediately.

Charge-Off
Lenders declare this debt uncollectible and write it off. It is often transferred to a collection agency but remains legally owed.

Checking Account
Everyday transactions occur in this bank account, allowing deposits and withdrawals via checks or debit cards.

Collateral
Property pledged to secure a loan; the lender can repossess it if the loan is not repaid.

Compound Interest
Calculating interest on both the principal and any previously accrued interest.

Co-Signer
Another person who agrees to share the responsibility of loan repayment with the borrower.

Credit
Obtaining goods, services, or money now with a promise to pay later.

Credit Application
Requests for credit are made in writing, sometimes requiring a fee for processing.

Credit Bureau
Agencies that collect credit information and issue reports to lenders. Specifically, major bureaus include Equifax, Experian, and TransUnion.

Credit Card
Purchases are made on credit using this bank-issued card; balances accrue interest if not paid in full.

Credit Counseling
Professional guidance helps individuals manage or repair their credit.

Credit Limit
Maximum amounts available on a credit card or line of credit.

Credit Line
Also called a line of credit; the maximum loanable amount that can be reused once repaid.

Credit Report
Detailed records of a person’s credit history, including debts, repayments, and delinquencies.

Creditor
Institutions or people to whom money is owed.

Financial Terms: D – L

Debit Card
Linked directly to a bank account, this card is used to make purchases with funds deducted immediately.

Debt
Money borrowed and owed to a lender.

Debt Consolidation
Combining multiple debts into a single payment often results in a lower interest rate.

Default
Failure to meet the terms of a loan agreement or to make timely payments.

Delinquency
Missed or late payments on a credit account.

Direct Deposit
Electronically depositing funds directly into a recipient’s bank account eliminates the need for paper checks.

Equal Credit Opportunity Act (ECOA)
Discrimination against credit applicants is prohibited by this U.S. law.

E-Signature
Digital signatures are legally binding and used to sign electronic documents.

Fair Credit Reporting Act (FCRA)
Federal laws ensure consumers can access and dispute information on their credit reports.

FDIC (Federal Deposit Insurance Corporation)
Government agency insuring deposits up to $250,000 per depositor per bank.

Finance Charge
Total costs of borrowing, including interest and fees.

Fixed Interest Rate
Rates that remain unchanged for the duration of the loan.

Foreclosure
Legal actions allowing a lender to sell property pledged as collateral if the borrower defaults.

Installment Loan
Repaying a loan in regular payments over a set period.

Interest
Borrowing money costs this percentage of the loan amount.

Interest Rate
Annual percentages charged by a lender on borrowed funds.

Judgment
Court decisions resulting from a lawsuit, determining responsibility for debt repayment.

Late Payment Fee
Charges applied for making a payment after its due date.

Lease
Agreements allowing use of an asset, such as a car, for a set time and payment.

Lender
Providers of loans, whether institutions or individuals.

Liable
Legally responsible for a debt or obligation.

Lien
Claims against property used as security for a debt.

Loan
Funds borrowed with a promise to repay, usually with interest.

Loan Agreement
Contracts outlining loan terms and conditions formally.

Financial Terms: M – Z

Mortgage Loan
Real estate purchases are funded by this loan, using the property as collateral.

Public Record
Official financial files (e.g., bankruptcies, liens) available through government agencies.

Refinance
Replacing an existing loan with a new one typically secures better terms.

Repossess
Seizing property used as collateral when a borrower fails to repay.

Right of Rescission
Canceling certain loan agreements is a borrower’s right within three business days.

Savings Account
Accounts that earn interest on deposits are used for saving money.

Secured Loan
Loans backed by collateral (e.g., car, home).

Security
See: Collateral.

Simple Interest
Calculating interest only on the principal balance.

Title
Documents proving legal ownership of property.

Truth in Lending Act (TILA)
Disclosing loan costs, including APR and terms, is required by this law.

Unsecured Loan
Loans not backed by collateral rely solely on the borrower’s creditworthiness.

Variable Interest Rate
Changing periodically, this interest rate is based on an index.

Yield
Effective returns on financial products like savings accounts, bonds, or money market instruments.