Glossary of Terms

Amortization – when applied to a loan, the period over which the principal and interest are repaid in full.

Annual Fee – the administration fee charged each year on a credit card account.

Assets – your possessions, including business and revenue property, cash and investments, vehicles, boats, etc.

Collateral – assets, usually property or investments, used to secure a loan. (Not a requirement to cash a government student loan.)

Credit Rating – a rating created by authorized credit agencies that denote a person’s credit history.

Equity – the value of property beyond what may be owing on the property. For example, a house may be worth $250,000 with an outstanding mortgage of $100,000, creating equity of $150,000.

Fixed Interest Rate – an interest rate that is established at the beginning of a loan and will continue unchanged for the term of the loan.

Floating Interest Rate – an interest rate that is allowed to change during the term of a loan; usually pegged to that institution’s prime rate.

Guarantor – a person who guarantees to repay a loan in the event that the borrower defaults.

Lien – a claim on a person’s property as security for an unpaid debt.

Line of Credit – a revolving form of credit which the borrower utilizes as needed, up to a specified maximum credit limit.

Prime Rate – the interest rate banks charge their large corporate customers.

Principal – the amount of a loan excluding the interest.

Term – the period of a loan during which the interest rate is fixed. For example, the amortization of a loan might be 25 years (as is typically the case with mortgages), but the term may be only one year. After the term expires, the interest rate will be fixed for another term.

 

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