Loan paperwork is full of jargon. This Lending Buddy glossary explains the terms you'll see in loan offers, credit reports and mortgage documents in plain English, with links to our deeper guides.
A
- Amortization
- Paying off a loan through regular scheduled payments that cover interest and principal. Early payments are mostly interest; later payments are mostly principal. Learn more
- Amount financed
- The credit you actually receive, after any prepaid finance charges such as an origination fee are subtracted. Shown in the TILA disclosure. Learn more
- Annual percentage rate (APR)
- The yearly cost of credit, including interest and most required fees, expressed as a percentage. The best single number for comparing loan offers of similar length. Learn more
- Permission for a lender to withdraw payments automatically from your bank account. You can revoke it by notifying your lender and bank. Learn more
B
- Bad credit
- A loose term for a credit score in the lower ranges, often below about 580–630 on the FICO scale, usually due to late payments, collections or high utilization. Learn more
C
- Cash-out refinance
- Replacing your mortgage with a larger one and receiving the difference in cash, using your home equity. Learn more
- Closing costs
- Fees paid to finalize a mortgage, such as appraisal, title and origination charges — often around 2% to 5% of the loan amount. Learn more
- Closing Disclosure
- A five-page form you receive at least three business days before closing a mortgage, showing final loan terms and costs. Learn more
- Credit report
- A record of your credit accounts and payment history kept by Equifax, Experian and TransUnion. You can get free reports at AnnualCreditReport.com. Learn more
- Credit score
- A three-digit number, typically 300–850 for FICO, that predicts how likely you are to repay debt based on your credit report. Learn more
- Credit utilization
- How much of your available revolving credit you're using. Lower utilization generally helps your score. Learn more
D
- Debt consolidation
- Combining several debts into one new loan, ideally with a lower APR or a simpler single payment. Learn more
- Debt-to-income ratio (DTI)
- Your monthly debt payments divided by your gross monthly income. Lenders use it to judge whether you can afford a new payment. Learn more
- Down payment
- The part of a home's price you pay upfront in cash. FHA loans allow as little as 3.5% down with a 580+ score. Learn more
E
- E-signature
- A legally binding electronic signature under the federal E-SIGN Act, used to accept most online loan agreements. Learn more
- Emergency loan
- A loan used to cover an urgent, unexpected expense such as a car repair or medical bill, often funded quickly. Learn more
F
- FHA loan
- A mortgage insured by the Federal Housing Administration that allows lower down payments and credit scores than many conventional loans. Learn more
- Finance charge
- The total dollar cost of credit — interest plus certain fees — over the life of the loan. Learn more
- Fixed-rate mortgage
- A mortgage whose interest rate stays the same for the whole term, so principal and interest payments don't change. Learn more
H
- Hard inquiry
- A credit check made when you apply for credit that can lower your score by a few points for a short time. Learn more
I
- Installment loan
- A loan repaid in a set number of scheduled payments, usually of equal amounts. Learn more
L
- Late fee
- A charge a lender adds when a payment arrives after the due date or grace period. Learn more
- Loan Estimate
- A standard three-page form a mortgage lender must give you within three business days of applying, listing estimated rate, payment and closing costs. Learn more
- Loan-connection service
- A service, like Lending Buddy, that helps consumers reach lenders through one request. It does not lend money or make credit decisions. Learn more
M
- Military Lending Act (MLA)
- Federal law that caps the Military APR at 36% on most consumer credit for active-duty service members and their dependents. Learn more
- Mortgage insurance (PMI / MIP)
- Insurance that protects the lender when you put less than 20% down. PMI applies to conventional loans; MIP applies to FHA loans. Learn more
N
- NSF fee
- A non-sufficient funds fee charged when a payment is returned because your bank account lacks enough money. Learn more
O
- Origination fee
- A one-time fee for processing a loan, often a percentage of the amount and usually deducted from your proceeds. Learn more
P
- Payday loan
- A short-term, high-cost loan typically due in one lump sum on your next payday. Learn more
- Prepayment penalty
- A fee some lenders charge if you pay off a loan early. Many personal loans have none. Learn more
- Preapproval
- A lender's conditional commitment to lend a certain mortgage amount after reviewing your income, assets and credit. Learn more
- Principal
- The amount you borrowed, not counting interest and fees. Learn more
R
- Refinance
- Replacing an existing loan with a new one, often to get a lower rate, change the term or take cash out. Learn more
S
- Soft inquiry
- A credit check that doesn't affect your score, such as checking your own credit or a lender's prequalification review. Learn more
T
- Term
- The length of time you have to repay a loan, usually stated in months for personal loans and years for mortgages. Learn more
- Total of payments
- Everything you'll pay over the life of a loan if you make every payment as scheduled — principal plus finance charges. Learn more
- Tribal lender
- A lender owned by or affiliated with a federally recognized Native American tribe. Some charge APRs well above state caps. Learn more
- Truth in Lending Act (TILA)
- Federal law requiring lenders to disclose the APR, finance charge, amount financed and total of payments before you're bound by a loan. Learn more