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Basic Loan Terms and Definitions You Must Know

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Message Alicia Sanders

"You must get control of your money or the lack of it will forever take control you!" -
Dave Ramsey

Money is the basic or modern world. There is no person who has never faced financial problems. Applying for payday loans for example in Ottawa is an easy deal. It is harder and more important to understand all the nuances of the process.

The following terms and definitions aim at giving a simple and informal meaning for terms and definitions that may be unfamiliar to you. We have collected the most common terms you might face when applying for a loan, but please remember: the specific meaning of any definition or term may depend on a particular context.

  • Amortization is a structure of payments associated with the repayment of financial borrowings through a series of periodic payments. Each payment repays interest accrued on the unpaid amount of the debt and part of the principal amount of the debt.
  • An amount owed is a debt that a borrower still has to return to a lender/creditor.
  • APR means Annual Percentage Rate. It is an amount charged for borrowing shown as a yearly percentage.
  • Cash Advance is withdrawing cash from your credit card up to a certain limit. As a rule, cash advance has higher fees and interest rates than normal use of the card
  • Consumer Reporting Agency is an agency that maintains, compiles, and distributes credit and personal information to lenders. Such information may concern your number of credit accounts and their balance, payment habits, place and length of employment, records of credit transactions.
  • Lenders connect such agencies in order to check whether a potential borrower seeking a loan will be able to make timely payments. Lenders check how prospective the customer has handled his obligations in the past.
  • Co-signer is a person that assumes responsibility for the loan but does not occupy the property nor takes a title interest in the property.
  • Credit card perks are the advantages that credit card holder gets (cash back, rewards, discounts and so on).
  • Credit history is a virtual number consisting of three figures, according to which banks evaluate your trustworthiness and ability to repay debts.
  • This number can not be less than 300 and more than 900.
  • Credit Report is a summary of your credit history. An authorized consumer-reporting agency maintains this report and sends it to prospective lenders when requested. Credit reports contain the information about your current and recent address, payment performance, information about your current employer, type of your debt, current balances and available credit.
  • Debt-to-Income Ratio is a personal financial indicator that measures the ratio of the borrower's debt to his/her total income. On the contrary, a high DTI indicator can signal that a person has too much debt in relation to his or her income.
  • Deferment is a period of suspending the repayment of the loan's principal. It is given if a borrower is meeting at least one requirement contained in the promissory note or dictated by the law. During this period, a borrower can decide if he/she wants to pay interest on the loan or not.
  • Emergency Fund is the money put aside for unpredictable expenses or as a cushion in case of a financial problem and inability to get a stable income.
  • Federal Consolidation Loan is a program that gives a possibility to combine multiple federal-education loans into a single one, sometimes with the extended term of repayment.
  • The installment loan is borrowing a definite sum and repaying it according to a set schedule of payments.
  • Interest rate is a fee charged for using a loan. It is often expressed as an annual percentage. One might face a high-interest rate debt.
  • Pre-approval is a preliminary agreement on granting a loan. It gives you an opportunity to know the exact amount that you can count on when buying real estate and to hold this mortgage amount and the interest rate up to 120 days.
  • The prepayment penalty is paying a fee charged by a lender in case of making a repayment in advance.
  • Repayment term is the time during which you have to repay the principal, interest, and commissions accrued on the loan.
  • Refinancing is getting a new loan in order to repay an existing loan from another bank/lender on more favorable terms (lower monthly repayment or interest rate).
  • The secured loan is one of the loan types. The goods purchased by the borrower remain in property of the creditor until the full payment for the goods.

We hope that all the given definitions were interesting for you and this knowledge will help you in the future.
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Alicia Sanders is a financial writer, who provides proven advice for everybody. She writes useful articles based on her own great experience.
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Basic Loan Terms and Definitions You Must Know

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