Loan Types and Security
This loan is for a specific amount, paid back over a fixed period, and then the account is closed.
What is a term loan?
This is the cost of borrowing money, usually expressed as a percentage of the principal.
What is interest?
Nonprofit financial cooperatives that are owned by their members and typically offer lower rates and fees.
What are credit unions?
On a credit card, this is the short time period during which a payment can be made without incurring interest charges.
What is a grace period?
This is the asset a borrower pledges to a lender as security for a loan.
What is collateral?
A loan, like a credit card, that allows a borrower to repeatedly use and replenish funds up to a credit limit.
What is a revolving loan?
This is the original sum of money borrowed, or the remaining balance on which interest is calculated.
What is the principal amount?
These institutions historically focused primarily on accepting savings deposits and providing mortgage loans.
What are savings and loan associations (S&Ls)?
This phrase describes using a credit card and paying the full balance before the end of the grace period.
What is an interest-free short-term loan?
A person who legally agrees to share responsibility for a loan's repayment if the primary borrower defaults.
What is a co-signer?
These loans require the borrower to pledge an asset, such as a house or car, as a guarantee of repayment.
What are secured loans?
This interest rate remains the same for the entire life of the loan, offering predictable payments.
What is fixed interest?
An intermediary who connects borrowers with various lenders to find the best loan terms, but does not fund the loan themselves.
What is a mortgage broker?
A service that allows a credit cardholder to withdraw cash, often incurring high fees and interest immediately.
What is a cash advance?
This occurs when a borrower fails to meet the repayment obligations of a loan as specified in the agreement.
What is loan default?
An unsecured loan used for various expenses, like debt consolidation, without requiring specific collateral.
What is a personal loan?
This interest rate can fluctuate up or down over the life of the loan, often tied to an economic index.
What is variable interest?
A financial institution, such as a bank, that originates and funds the mortgage.
What is a mortgage lender?
A revolving line of credit secured by the equity in a home, allowing the borrower to draw funds as needed.
What is a Home Equity Line of Credit (HELOC)?
The legal process by which a lender takes back an asset used as collateral after a borrower defaults on a secured loan.
What is repossession?
A secured loan that uses real estate as collateral to finance the purchase of that property.
What is a mortgage?
The true annual cost of a loan, expressed as a single percentage, which includes both the interest rate and any fees.
What is the APR (Annual Percentage Rate)?
An online system that directly connects individual borrowers with individual investors without a traditional bank as the middleman.
What is a peer 2 peer (P2P) loan system?
These are very high-interest, short-term loans typically due on the borrower's next paycheck.
What are payday loans?
This is a secured loan that allows a homeowner to borrow a lump sum of money against the value of their home's equity.
What is a home equity loan?