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Glossary of
Financial Terms
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Adjustable Rate: An interest rate that changes periodically in relation to an index. Payments
may increase or decrease accordingly.
Annual Percentage Rate (APR): The cost of credit on a yearly basis, expressed as a
percentage. Required to be disclosed by the lender under the federal Truth in Lending Act,
Regulation Z. Includes up-front costs paid to obtain the loan.
Basis Point: One one-hundredth of a percentage point. The difference between 8.00
percent and 8.01 percent is one basis point.
Cap: The maximum allowable increase used for either payment or interest rate, for a
specified amount of time on an adjustable rate.
Ceiling: Maximum allowable interest on an adjustable rate over the life of the loan.
Credit limit: The maximum amount that you can borrow.
Credit Repository: An organization that gathers, records, updates, and stores financial
and public records information about the payment records of individuals who are being considered
for credit.
Debt: Amount owed to another.
Delinquency: Failure to make loan payments on time.
Equal Credit Opportunity Act (EOCA): A federal law that requires lenders and other
creditors to make credit equally available without discrimination based on race, color, religion,
national origin, age, sex, marital status, or receipt of income from public assistance programs.
Fair Reporting Act: A consumer protection law that regulates the disclosure of consumer
credit reports by consumer/credit reporting agencies and establishes procedures for correcting
mistakes on one's credit record.
Fixed Rate: An interest rate fixed for the term of the loan. Payments as well are fixed
at one amount.
Gross Income: The income of the borrower before taxes or expenses which are deducted and
used for qualifying purposes.
Household Income: The total income of all members of a household. An important yardstick
used by lenders evaluating applications for joint credit.
Interest-Only Loan: An advance of money in which the installments pay only the interest
that accumulates on the loan balance. The loan balance does not decrease with the payments. Usually
the interest-only payments last for a limited period, after which payments rise and the borrower
begins paying principal in addition to interest.
Late Charge: A fee imposed on a borrower for not paying on time.
Lender: The company underwriting and offering the loan.
Line of Credit: A commitment by a financial institution to lend up to a specified maximum
amount to a customer during a specified period of time.
Loan Application: A document in which a prospective borrower details his or her financial
situation to qualify for a loan.
Payday Loan: A payday loan made generally until ones next payday, the amount of money
borrowed, the amount of money owed, and any fees are due next payday.
Rate: The annual rate of interest on a loan, expressed as a percentage of 100.
Truth in Lending Act: A federal law requiring a disclosure of credit terms using a standard
format. This is intended to facilitate comparisons between the lending terms of different financial
institutions.
Unsecured Loan: An advance of money that is not secured by collateral.
Verification of Employment: Confirmation that a loan applicant is telling the truth about
where he or she works and how much he or she makes.
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