Are you confused by finance language? We know some of these words can be scary and confusing, but understanding their meaning and importance will help you to make more informed financial decisions in the future. We compiled a list of the most commonly used Finance terms in our world to better your knowledge.
APR– An annual percentage rate (APR) is the rate charged for borrowing or earned through an investment each year. It is a percentage that shows the proper yearly cost of funds over the term of the loan. Fees or additional costs associated with the contract that are not compounded are included in the APR.
Debt Consolidation– Debt Consolidation is taking out a new loan to pay off old debts. Multiple debts are combined into a single payment typically with better terms such as a lower interest rate, lower monthly payment or both.
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Credit History– Credit history is a record of the capability of an individual to repay debts, and a pattern for debt repayments. Credit History includes number and types of credit accounts, length of time the account has been open, number of accounts with a balance, timeliness of payments, number of credit inquiries, and available credit that has been used. You will also find information about bankruptcies, liens, judgments, or collections on the consumer credit report.
Refinancing– Occurs when terms of the original loan are changed. Typically this is used for lower interest rates, but it can also help to reduce monthly payments by increasing the length of the loan.
If you’re interested in refinancing options we do offer home refinancing and auto refinancing loans.
Secured Loan– Secured Loans are loans in which the borrower pledges an asset (e.g., a car or personal property) as collateral to obtain the loan. These loans are secured by personal property of value from the borrower and can be seized should the borrower not meet the terms of the original loan agreement.
ACH– An automated clearing house (ACH) is a funds-transfer system that allows funds to be transferred electronically. This system deals with payroll, tax refunds, consumer bills and more. The use of ACH has made transactions complete faster and more efficient.
Co-borrower– A co-borrower is an additional borrower added to the loan forms. Their income and credit history are used to qualify them for this loan and both parties are equally responsible for repaying the debt.
Borrower– A borrower is a person that uses money from a loan with the intention of paying it back to the lender
Net-income– Net income (NI) is a company’s Profit. It is calculated by subtracting costs of business from revenue. This number appears on financial reports such as in income statement and is crucial to determining a company’s profitability over any period of time. Net income also refers to an individual’s income after taxes, benefits, and other deductions are subtracted from their total income.
Prescreened– Prescreened credit offers are based on credit information that indicates you meet certain criteria relating to creditworthiness established by a creditor prior to making the offer via mail, email or phone.
Collateral– Collateral is an asset that a borrower offers as a way for a lender to secure the loan. If the borrower stops making the payments as outlined in the loan agreement, the lender can take ownership of the asset to satisfy the outstanding debt. Because this serves as insurance to the lender, often times, secured loans have lower interest rates than unsecured loans.
Credit Reporting Agencies – Nationwide Credit Reporting Agencies such as Transunion, Equifax and Experian collect and maintain information relating to consumer credit experience and make it available to financial institutions to aid in the process of assessing a consumer’s creditworthiness.
Credit Repair– Credit repair is an attempt to improve poor credit standing. The process can be as easy as disputing mistakes on your own report. For people who have undergone identity theft, repair could require additional repair work.
Credit– Credit is an agreement where a person receives something they find valuable and agrees to pay the owner at a future date, usually with interest.
FICO Score– A FICO score is a credit score created by the Fair Isaac Corporation. Lenders use FICO scores and other details to determine credit risk and whether or not to extend credit. FICO scores use payment history, current debt, types of credit, credit history, and new accounts to determine the final score and credit worthiness.
Hard Inquiry– A hard inquiry is a request for information from the credit reporting agency that includes a full credit report and may deduct points from a credit score.
Co-signer– To cosign is the act of signing with another person to get a loan. Cosigners may help borrowers to get terms for their loan that were not available otherwise.
Soft inquiry– A soft inquiry is request for information from the credit reporting agency that does not affect credit score. This is mostly used by current lenders and financial institutions that want to extend a pre-approved offer for credit.
Late payment– A late payment is a payment made on a loan after the date that the payment is due. Consequences of making payments late may include late payment fees, additional interest and/or negative impact on a person’s credit score.
Term– Term is the length of time assigned to the lifespan of a loan.
Armed with your new financial wisdom, what are you going to do with this information? Are there any financial terms we are missing or terms you are seeing for the first time? Follow us on facebook and twitter to let us know using #MoneyTalk.
