When you’re shopping for a title loan, personal loan or any other type of credit, life can seem a bit confusing. All of the sudden, terms like interest rate, credit report, APR and others are top of mind. But what do they actually mean, and how do they matter for your financial decisions?
The below glossary of financial terms is meant to give you a concise definition of key terms that you should know when you’re in the market for a loan. The more you know, the better prepared you’ll be to understand your loan agreement, compare your credit options, and make good financial decisions for yourself!
Ability to repay: ability to repay refers to an applicant’s demonstrable capacity to make the expected payments on a new loan or other form of credit. Lenders take the ability to repay into account when making a credit decision so as to ensure they don’t take on undue risk, and also in order to comply with applicable lending laws.
ACH: ACH stands for “Automated Clearing House”, and is used as a synonym for electronic bank transfers, which are run through the ACH network. Examples of ACH transactions include employer direct deposits, or loan payments made electronically from a bank account.
Adverse Action: In the context of lending, Adverse Action is what occurs when a lender does not approve a credit application, or turns down a credit application due to incompleteness. After making the decision to deny credit, lenders provide a notice of Adverse Action to the applicant(s) so as to inform them of the negative decision, and to comply with applicable lending laws.
APR: APR, which is short for “Annual Percentage Rate”, is a number that expresses the annual cost of credit in percent. The APR does not only include interest, but also certain fees, and is thus a good metric to use when comparing loan options. The higher the APR, the more you end up paying.
Balance: In financial services, Balance refers to the outstanding amount you have left to pay on an existing credit obligation.
Collateral: In the context of financial services, Collateral refers to an item of value that is used to secure a loan. Common examples of Collateral include a home in case of a mortgage, or a vehicle in case of a vehicle-purchase loan or title loan.
Credit: Credit refers to an agreement or transaction between an entity that lends money (the creditor) to someone who borrows money and promises to repay it (the borrower).
Credit Bureau: A Credit Bureau is an organization that collects personal and financial information from creditors and other data sources, and provides the collected data to lenders, employers, landlords and others upon request, for the purpose of evaluating or scoring an applicant or customer.
Credit Card: A Credit Card is an access device used to make charges against an existing line of credit with a credit card provider.
Credit Check: A Credit Check refers to an evaluation of an applicant’s creditworthiness. Credit Checks typically include the pulling of an updated Credit Report for an applicant, and can also include other elements of an applicant’s financial history, such as reviewing the status and history of existing and previous accounts.
Credit Report: A Credit Report is the information that a Credit Bureau has complied on a specific individual, which is provided to a requestor such as a lender or landlord. In order to request a Credit Report, requesters must have a permissible purpose to do so.
Credit Score: A Credit Score is a numeric expression of someone’s financial history and creditworthiness at a given point in time, as calculated according to a certain scoring model. There are different credit scoring models and model versions, so there isn’t just one Credit Score. Two of the best known Credit Score models are the FICO Score and the Vantage Score.
Creditworthiness: Creditworthiness refers to the perceived riskiness of lending money to someone. An applicant who is perceived to be creditworthy is likely to be approved for a loan or other credit product. Key factors for creditworthiness include an applicant’s financial history, current Ability to Repay, and ability to offer a Collateral for the loan (if applicable).
Debit Card: A Debit Card is an access device used to make charges against an existing checking account or against a pre-paid debit card balance.
Debt: Debt refers to money that is owed by a borrower (the debtor) to a lender (the creditor).
Installment Loan: An Installment Loan is a form of credit where a borrower receives a one-time extension of credit that is repaid over several months in monthly installments (i.e. monthly payments).
Interest Rate: An Interest Rate is a number reflecting the amount of interest a lender charges a borrower, expressed a percent per year. Unlike the Annual Percentage Rate, the Interest Rate does not include fees.
Late Fee: A Late Fee is a charge assessed on an account when a required payment has not been made by a contractually agreed-upon date.
Lender: A Lender is an entity that extends credit to borrowers.
Lien: In lending, a Lien refers to the legal claim that a Lender has on an asset that is used as Collateral for a loan. When a lien is placed against a Collateral, the lender has the ability to take possession of the Collateral and sell it if the borrower does not honor the terms of the Credit agreement.
Loan Agreement: The Loan Agreement is a contract between a Lender and a borrower, reflecting the details of the Credit obligation including the amount of Credit, interest rate, and the terms of repayment.
Money Transmitter: A Money Transmitter is an entity that is licensed to provide money transfer services between parties. Common examples of Money Transmitters include MoneyGram and Western Union.
NSF: NSF, short for Non-Sufficient Funds, is what occurs when a transaction is rejected because an account does not have sufficient funds to cover a requested transaction, such as an ACH transaction or a check that is presented for payment. NSF transactions frequently result in an NSF fee being assessed to the account holder.
Origination Fee: Origination Fee refers to a one-time fee that is assessed by a lender at the start of a loan, for making and processing the loan.
Payday Loan: A Payday Loan is typically a small-dollar loan that is expected to be repaid in a short amount of time, typically by the borrower’s next payday.
Payoff: Payoff refers to the amount a borrower needs to pay to completely pay off an existing Debt on a given date. The Payoff is typically higher than the current Balance of an account, since it includes interest that will accrue through the intended date of the Payoff.
Refinance: A Refinance refers to the process of replacing an existing Debt with a new Debt, typically with the goal of having a lower monthly payment, lower Interest Rate, or both.
Repossession: Repossession is the process of a lender taking possession of an asset that was used as Collateral for a loan or other Credit obligation. Lenders resort to Repossession when contractually agreed-upon Debt payments have not been made as agreed. Typically, Repossession is used when payments are significantly past-due.
Secured Loan: A Secured Loan is a loan for which some type of asset must be used as Collateral in order to obtain the loan.
Simple Interest: Simple Interest refers to a method of calculating interest only on the principal Balance of the loan (as opposed to the compound interest method, which calculates interest on both principal and interest).
Title Loan: A Title Loan is a type of Secured Loan that requires the use of a vehicle / vehicle title as Collateral for the loan.
Underwriting: Underwriting refers to the process of a Lender verifying the key aspects of your Credit application, such as your income, Credit Report and any Collateral used in connection with the application.
Unsecured loan: An Unsecured Loan is a loan that does not require the borrower to pledge Collateral when obtaining the loan. It is therefore primarily based on the applicant’s Creditworthiness and Ability to Repay.
We hope you found this loan glossary a useful tool in your quest to better understand your financial options. Should you have any questions, or if you are considering to solve your current cash need with a title loan serviced by LoanMart, please don’t hesitate to apply online, or reach out to one of our friendly title loan specialists at 855-422-7412.
