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Key Terms

  • Updated

  1. Credit Score: A numerical representation of an individual's creditworthiness, influencing the ability to borrow and the terms of credit.

  2. Credit Report: A detailed record of an individual's credit history, including credit accounts, payment history, and outstanding debts.

  3. Debt-to-Income Ratio (DTI): The percentage of a person's monthly income that goes toward paying debts, a key metric for lenders to assess borrowing capacity.

  4. Interest Rate: The cost of borrowing money, expressed as a percentage of the loan amount.

  5. Principal: The original amount of money borrowed or the outstanding balance on a loan.

  6. Secured Loan: A loan backed by collateral, such as a home or a car, reducing the lender's risk.

  7. Unsecured Loan: A loan without collateral, relying solely on the borrower's creditworthiness.

  8. Loan Term: The period over which a loan is expected to be repaid.

  9. Fixed-Rate Loan: A loan with a set interest rate that remains constant throughout the loan term.

  10. Variable-Rate Loan: A loan with an interest rate that can change periodically based on market conditions.

Debt Repayment Key Terms:

  1. Minimum Payment: The smallest amount a borrower must pay each billing cycle to keep the account in good standing.

  2. Amortization: The process of paying off a debt through regular payments over time, with a portion going toward both principal and interest.

  3. Debt Snowball: A debt repayment strategy where the borrower pays off the smallest debts first, gaining momentum for tackling larger debts.

  4. Debt Avalanche: A debt repayment strategy where the borrower prioritizes paying off debts with the highest interest rates first.

  5. Forbearance: A temporary pause or reduction in loan payments, often granted by lenders during financial hardship.

  6. Grace Period: The period during which a borrower can make payments without incurring additional charges, typically after the due date.

  7. Debt Consolidation: Combining multiple debts into a single loan, often with a lower interest rate, to simplify repayments.

  8. Debt Settlement: Negotiating with creditors to pay less than the total amount owed to satisfy a debt.

  9. Default: Failing to meet the terms of a loan agreement, leading to serious consequences such as damage to credit and potential legal action.

  10. Repossession: The reclaiming of collateral by the lender due to a borrower's failure to meet the terms of a secured loan.

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