| Amortization |
 |
The process of fully paying off indebtedness by
installments of principal and earned interest
over a definite time. |
| Annual
Percentage Rate (APR) |
| The cost of carrying
a balance on a loan expressed as an annual percentage.
To calculate the amount owed in interest each
month divide the APR by 12. For example, if the
APR is 18% the monthly rate is 1.5%. |
| Asset
|
| Anything owned by an individual that has a
cash value. This includes property, goods, savings
or investments. |
| Assumption |
|
The agreement between buyer and seller where the
buyer takes over the payments on an existing mortgage
from the seller. Assuming a loan can usually save
the buyer money since this is an existing mortgage
debt. |
| Average
Daily Balance |
| The average daily balance is
a method used to calculate finance charges. It
is calculated by adding the outstanding balance
on each day in the billing period, and dividing
that total by the number of days in the billing
period. The calculation includes new purchases
and payments. |
| Bad
Credit |
| A term used to describe a poor credit
rating. Common practices that can damage a credit
rating include making late payments, skipping
payments, exceeding card limits or declaring bankruptcy.
"Bad Credit" can result in being denied
credit. |
| Balance |
|
The total amount of money owed. It includes any
unpaid balance from the previous month, new purchases,
cash advances, and any charges such as an annual
fee, late fee or interest. The balance should
not be confused with the monthly payment (the
minimum payment allowed each month), which is
generally 2% - 5% for revolving credit cards.
|
| Balance
Transfer |
| Moving a balance (debt) from one
credit card to another. This is often done with
special checks or forms, or may be offered as
an option on some credit card applications. The
usual reason is to shift an ongoing debt to an
account with a lower interest rate. |
| Bankruptcy |
|
Bankruptcy is a legal declaration of the inability
to repay debts. Bankruptcy should be viewed as
a last resort. It will have a severe impact on
a credit rating and will remain on a credit report
for ten years. Furthermore, bankruptcy is not
a solution in all cases. Federal student loans,
Federal tax debt and child support are all exempt
from bankruptcy protection. Bankruptcy agreements
vary but there are two types of agreements that
most people choose: Chapter 7 and Chapter 13.
|
| Chapter
7 |
|
In a Chapter 7 agreement, the court resolves most
debts by selling assets and property so that the
filer is given a fresh financial start. The court
takes all assets including cars, homes, furnishings,
jewelry or anything else of value. The assets
are sold to pay off the debt. There are some debts
that a person may wish to repay on their own instead
of having the court resolve it. This is called
reaffirmation. Reaffirmation is a special payment
plan with the court. For example, if a car loan
is reaffirmed, the person keeps the car and makes
payments under new terms. Chapter 7 bankruptcy
will not eliminate debts due to taxes, child support,
alimony, student loans, court fines or personal
injury caused by driving drunk or under the influence
of drugs. A Chapter 7 filing will remain on a
credit report for 10 years. |
| Chapter
13 |
|
In a Chapter 13 agreement, the court creates a
debt repayment plan that allows the filer to keep
their property. In order to file Chapter 13, a
person must have a source of income and promise
to pay part of their income to creditors. The
court allows the filer to keep any assets that
have debts against them if they pay them off under
terms determined by the court. A Chapter 13 filing
will remain on a credit report for 10 years. With
Chapter 13, there is a better chance of obtaining
future loans and credit. |
| Beacon
Score |
| This is your credit score that creditors
look at when determining if you are credit worthy.
Your Beacon Score is determined by negative entries
such as late payments which would decrease your
score or a positive, timely payment history on
your accounts which would increase your score.
|
| Billing
Cycle |
| The number of days between statement
dates. This is generally about 25 days. |
| Buydown |
|
A lump sum payment made to the creditor by the
borrower or by a third party to reduce the amount
of some or all of the consumer's periodic payments
to repay the indebtedness. |
| Cash
advance loan |
| a loan where a borrower
gets cash advanced based on his paycheck. These
loans generally up are up $500 and must be repaid
on the next payday. |
| Closed-end
Credit |
| Generally, any loan or credit sale
agreement in which the amounts advanced, plus
any finance charges, are expected to be repaid
in full over a definite time. Most real estate
and automobile loans are closed- end agreements.
|
| Collateral |
|
Property that is offered to secure a loan or other
credit and that becomes subject to seizure on
default. (Also called security.) |
| Conditionalities
|
| Extra requirements other than repayment (such
as ‘structural adjustment’ policies)
demanded by the lender before new loans are granted.
|
| Cosigner |
|
Another person who signs for a loan and assumes
equal liability for it. |
| Credit |
|
The promise to pay in the future in order to buy
or borrow in the present. The right to defer payment
of debt. |
| Creditworthiness |
|
A creditor's measure of a consumer's past and
future ability and willingness to repay debts.
|
| Credit
Card |
| Any card, plate, or coupon book that
may be used repeatedly to borrow money or buy
goods and services on credit. |
| Credit
History |
| A record of how a person has borrowed
and repaid debts. |
| Credit
Scoring System |
| A statistical system used
to determine whether or not to grant credit by
assigning numerical scores to various characteristics
related to creditworthiness. |
| Debt
service |
| Total payments due on loans (repayments
plus interest). |
| Default
|
| Failure to meet the terms of a credit agreement.
|
| Discharge |
|
A legal terms meaning a court has erased your
debt(s) not to be confused with a "charge
off" or "write off" which is an
accounting term which does not erase debts. |
| Discount
|
| An amount deducted from the regular price
for those who purchase with cash instead of credit.
|
| Finance
Charge |
| The total dollar amount paid to get
credit. |
| Fixed
Rate |
| A traditional approach to determining
the finance charge payable on an extension of
credit. A predetermined and certain rate of interest
is applied to the principal. |
| Graduated
Payment |
| Repayment terms calling for gradual
increases in the payments on a closed-end obligation.
A graduated payment loan usually involves negative
amortization. |
| Liability |
|
Legal responsibility to repay debt. |
| Lien |
|
a notice a creditor attaches to your property
that tells the world that you owe the creditor
money. You cannot sell the property without paying
off the creditor because the lien makes the "title"
(history of ownership) cloudy and a new owner
won't buy under those conditions. |
| Negative
Amortization |
| Repayment schedule calling for
periodic payments that are insufficient to fully
amortize the loan. Earned but unpaid interest
is added to the principal, increasing the debt.
Eventually, payments must be rescheduled to fully
pay off the debt. |
| Open-end
Credit |
| A line of credit that may be used
repeatedly up to a certain limit, also called
a charge account or revolving credit. |
| Open-end
Lease |
| A lease that may involve a balloon
payment based on the value of the property when
it is returned. (Also called finance lease.) |
| Overdraft
Checking Account |
| A checking account associated
with a line of credit that allows a person to
write checks for more than the actual balance
in the account, with a finance charge on the overdraft.
|
| Payday Loan |
| a loan where a borrower gets cash
advanced based on his paycheck. These loans generally
up are up $500 and must be repaid on the next
payday.
|
| Points
|
| Finance charges paid by the borrower at the
beginning of a loan in addition to monthly interest;
each point equals one percent of the loan amount.
|
| Principal
|
| Amount of the loan. |
| Renegotiable
Rate |
| A type of variable rate involving a
renewable short- term "balloon" note.
The interest rate on the loan is generally fixed
during the term of the note, but when the balloon
comes due, the lender may refinance it at a higher
rate. In order for the loan to be fully amortized,
periodic refinancing may be necessary. |
| Reschedule |
|
Revised timetable for loan repayments, usually
granting longer repayment periods and often involving
new loans to pay old ones |
| Security
Interest |
| The creditor's right to take property
or a portion of property offered as security.
|
| Seller's
Points |
| A lump sum paid by the seller to the
buyer's creditor to reduce the cost of the loan
to the buyer. This payment is either required
by the creditor or volunteered by the seller,
usually in a loan to buy real estate. Generally,
one point equals one percent of the loan amount.
|
| Service
Charge |
| A component of some finance charges,
such as the fee for triggering an overdraft checking
account into use. |
| Statement |
|
The monthly bill from a credit card issuer that
describes and summarizes the activity on an account.
A statement includes the outstanding balance,
purchases, payments, credits, finance charges
and other transactions for the month. |
| Statement
Date- |
| The date on which a statement is generated,
and the month's finance charges (interest) are
added to the balance. |
| Surcharge |
|
An extra charge imposed on those who purchase
with a credit card instead of cash. (Currently,
surcharges for credit card purchases are prohibited.)
|
| Variable
Rate |
| A variable rate agreement, as distinguished
from a fixed rate agreement, calls for an interest
rate that may fluctuate over the life of the loan.
The rate is often tied to an index that reflects
changes in market rates of interest. A fluctuation
in the rate causes changes in either the payments
or the length of the loan term. Limits are often
placed on the degree to which the interest rate
or the payments can vary. |
