Borrowing & Credit

62 Borrowing & Credit terms, defined in plain English — part of the 1345-term Finicade finance glossary. Each one has its own page, and links to the free game that teaches it.

Adjustable-Rate Mortgage (ARM): An ARM is a mortgage whose rate is fixed for an initial period and then resets periodically against an index.
Amortization: Paying off a loan in equal instalments that each cover the interest due plus a slice of principal.
APR (Annual Percentage Rate): The yearly cost of borrowing money, expressed as a percentage.
APY (Annual Percentage Yield): The yearly return on savings once compounding is counted — the savings-side twin of APR.
Auto Loan: An auto loan is an installment loan secured by the car itself, so default means repossession rather than a court fight.
Balance Transfer: A balance transfer moves debt to a card offering a low or 0% promotional rate, usually for 12–21 months, for a fee of 3–5% of the amount.
Balloon Payment: A balloon payment is a large lump sum due at the end of a loan whose regular payments were too small to repay it.
Bankruptcy: Bankruptcy is the legal process that discharges or restructures debts you cannot repay, in exchange for court supervision and severe credit consequences.
Buy Now, Pay Later (BNPL): Buy now, pay later splits a purchase into a few interest-free installments, usually four payments over six weeks, with the merchant paying the provider's fee.
Cash Advance: A cash advance is withdrawing cash against a credit card, and it is priced as the most expensive routine borrowing most people have access to.
Charge-Off: A charge-off is the lender's accounting decision to write a debt off as a loss, typically after 120–180 days of non-payment.
Collateral: An asset pledged to back a loan or trade, which the lender can seize if you don't pay.
Compound Interest: Interest that earns interest.
Compounding Frequency: How often interest is added — yearly, monthly, daily or continuously.
Cosigner: A cosigner promises to repay a loan if the primary borrower doesn't, letting someone with thin or damaged credit qualify.
Credit Bureau: A credit bureau is a company that collects your borrowing history from lenders and sells it back to them as a report and score.
Credit Card: A revolving line of credit: spend now, repay later.
Credit Limit: A credit limit is the maximum balance a card or line of credit allows.
Credit Report: A credit report is the record a bureau holds on you: accounts, balances, payment history, inquiries, public records.
Credit Score: A number lenders use to gauge how reliably you repay.
Credit Utilization: Credit utilization is the share of your available revolving credit you're currently using, and it drives roughly 30% of a FICO score.
Debt: Money you owe and must repay, usually with interest.
Debt Collection: Debt collection is the pursuit of an unpaid debt by the original lender or, more often, an agency that bought it.
Debt Consolidation: Debt consolidation rolls several debts into one loan with a single payment, ideally at a lower rate and with a fixed payoff date.
Debt Settlement: Debt settlement is paying a lump sum smaller than the balance in exchange for the creditor calling the debt closed.
Debt-to-Income Ratio (DTI): Debt-to-income ratio is your total monthly debt payments divided by gross monthly income — the number that decides whether a mortgage lender says yes.
Defaulting on a Loan: Defaulting on a loan means missing payments long enough that the lender stops waiting and starts collecting.
Deferment: Deferment postpones payments on a loan for a qualifying reason — study, unemployment, military service — sometimes with the interest subsidised.
Delinquency: A delinquency is a payment past its due date, reported in 30-day buckets: 30, 60, 90, 120 days late.
Discount Points: Discount points are upfront fees paid to buy a lower mortgage rate — one point costs 1% of the loan and typically cuts the rate by about 0.25%.
EAR (Effective Annual Rate): The true yearly rate once compounding within the year is counted — so a card quoting 2% a month is really about 27% a year, not 24%.
FICO Score: A FICO score is the specific 300–850 credit score used in the large majority of US lending decisions.
Fixed-Rate Mortgage: A fixed-rate mortgage keeps the same interest rate for the entire term, so the payment never changes.
Forbearance: Forbearance is a lender's formal agreement to pause or reduce payments temporarily during hardship, without treating you as delinquent.
Good Debt vs Bad Debt: Good debt is cheap and buys something that grows or earns — a mortgage, student loans, a business loan.
Grace Period: A grace period is the window between a statement closing and the payment due date during which no interest accrues on new purchases — typically 21–25 days.
Hard Inquiry: A hard inquiry is a lender checking your credit file because you applied for credit, and it typically costs a handful of points for up to a year.
HELOC (Home Equity Line of Credit): A HELOC is a revolving credit line secured against the equity in your home — you draw what you need, repay it, and draw again.
Home Equity: Home equity is your home's market value minus what you still owe on it — the part of the house that is actually yours.
Installment Loan: An installment loan is borrowed once and repaid in fixed payments over a set term — mortgages, car loans, student loans, personal loans.
Interest Rate: The price of money: what you're paid to lend it (savings) or charged to borrow it (loans), as a percentage per year.
Introductory APR: An introductory APR is a temporary promotional rate — often 0% — that reverts to the standard rate on a fixed date.
Late Fee: A late fee is a flat charge for missing a payment due date, commonly $25–$40 on a credit card.
Leverage: Using borrowed money to increase the size of a position — magnifying both gains and losses.
Loan Modification: A loan modification permanently changes an existing loan rate, term or principal to make payments affordable and avoid a costly foreclosure.
Loan-to-Value Ratio (LTV): Loan-to-value is the loan amount divided by the asset's value — how much of the purchase the lender is funding.
Minimum Payment: The smallest amount a lender will accept on a credit card this month.
Mortgage: A long-term loan to buy property, secured on the home itself.
Origination Fee: An origination fee is what a lender charges to process and underwrite a loan — 0.5–1% on mortgages, and up to 8% on some personal loans.
Overdraft: Spending more than your account holds, with the bank covering the gap — for a fee or steep interest.
Payday Loan: A payday loan is a small, very short-term advance repaid on your next payday, typically costing $15 per $100 borrowed — which annualises to roughly 400% APR.
Personal Loan: A personal loan is a fixed-rate, fixed-term, usually unsecured loan for any purpose, priced mainly off your credit score.
Prepayment Penalty: A prepayment penalty charges you for repaying a loan early, because early repayment costs the lender the interest it expected.
Principal: The original sum borrowed or invested, before any interest.
Refinancing: Replacing an existing loan with a new one on better terms — usually a lower rate.
Revolving Credit: Revolving credit lets you borrow up to a limit, repay, and borrow again with no fixed end date — credit cards, overdrafts and HELOCs.
Secured vs Unsecured Loan: A secured loan is backed by collateral the lender can seize (a mortgage, a car loan); an unsecured one isn't (most credit cards).
Simple Interest: Interest charged only on the original amount, never on interest already added.
Soft Inquiry: A soft inquiry is a look at your credit file that does not affect your score — checking your own report, a pre-approval, or a landlord screening.
Student Loan: A student loan finances education, and unlike other consumer debt, repayment often starts after study and government versions carry real protections.
Subprime Lending: Subprime lending is credit extended to borrowers with weak credit histories, priced with much higher rates to compensate for the higher default rate.
Usury: Usury is charging interest above the legal maximum, and usury laws are the caps that define it.

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