Credit Glossary
Understand the key terms of credit and loans to make informed financial decisions
APR (Annual Percentage Rate)
The annual cost of a loan expressed as a percentage, including interest and fees. The APR provides a complete picture of what a loan will cost you over a year.
Amortization
The process of repaying a debt over time through regular payments. Each payment covers both the principal and the interest, with the proportion changing over the loan term.
Collateral
An asset (such as a house or car) pledged as security by a borrower to guarantee a loan. If the borrower defaults, the lender can seize the collateral.
Credit Score
A numerical representation of your creditworthiness, typically ranging from 300 to 850. Higher scores indicate lower risk for lenders and may lead to better loan terms.
Debt consolidation
Combining multiple debts into a single loan, often with a lower interest rate or more favorable terms. This simplifies repayment and can reduce monthly payments.
Debt-to-income ratio
The percentage of your gross monthly income that goes toward debt payments. Lenders use this to assess your ability to manage your monthly payments.
Default
Failure to repay a loan according to the agreed terms. Defaulting can severely damage your credit score and may lead to legal action.
Deferred Payment
A loan feature that allows borrowers to postpone payments for a specified period. Interest may continue to accrue during the deferral period.
Fixed interest rate
An interest rate that remains constant throughout the loan term, providing predictable monthly payments.
Grace period
A period after a payment due date during which you can make a payment without incurring late fees or penalties.
Guarantor
A person who agrees to repay a loan if the primary borrower defaults. Having a guarantor can improve the chances of approval for those with limited credit.
In-depth investigation
A credit check performed when you apply for credit. In-depth investigations may temporarily lower your credit score and remain on your report for two years.
Interest rate
The percentage charged on the principal amount of a loan. It is the cost of borrowing money, usually expressed as an annual rate.
Loan Term
The length of time you must repay a loan, usually expressed in months or years. Longer terms mean lower monthly payments but more total interest paid.
Application fee
A fee charged by lenders for processing a new loan application. It is usually a percentage of the loan amount.
Pre-approval
A preliminary assessment by a lender indicating how much you might be eligible to borrow. This is not a guarantee of final approval but helps with planning.
Principal
The original loan amount, excluding interest and fees. As you make payments, the principal decreases.
Refinancing
Replacing an existing loan with a new one, usually to obtain better terms such as a lower interest rate or a different repayment period.
Secured Loan
A loan secured against collateral. If you default, the lender can repossess the collateral. Examples include mortgages and auto loans.
Flexible credit check
A credit check that doesn’t affect your credit score. These occur when you check your own credit or when lenders pre-approve you for offers.
Unsecured loan
A loan not backed by collateral. Personal loans are generally unsecured and may have higher interest rates due to the increased risk for the lender.
Variable interest rate
An interest rate that can change over time depending on market conditions. Monthly payments may fluctuate with rate changes.
Borrowing capacity
The maximum amount a borrower can reasonably afford to borrow based on their income, expenses, and existing financial obligations.
Mortgage insurance
Insurance that covers loan payments in the event of death, disability, or job loss. Often optional, but can provide peace of mind.
Early repayment penalty
Fees charged by some lenders if you repay your loan before the end of the agreed term. At Privat Equity, we do not have early repayment penalties.
Revolving credit
A type of credit where you can borrow, repay, and borrow again up to an approved limit. Credit cards are an example of revolving credit.
Amortization Schedule
A detailed schedule showing each loan payment, broken down into principal and interest, over the entire loan term.
Nominal Annual Percentage Rate (APR)
The base interest rate without including additional fees, unlike the APR which includes all costs.
Grace period
The initial period of a loan during which you only pay the interest, without repaying the principal.
Debt restructuring
Modifying the terms of an existing loan to make payments more manageable, such as extending the term or reducing the interest rate.
Secured loan
A loan tied to the purchase of a specific good or service, such as a car loan or a personal property loan.
Unsecured loan
A loan that is not tied to a specific purchase and can be used at your discretion, like a personal loan.