Glossary Terms

Credit Counseling

Credit counseling is a service offered to individuals who are struggling with debt management or are looking to improve their financial situation.

Charge-Off

A Charge-Off is a financial term used to describe a situation where a creditor writes off an outstanding debt as uncollectible. In simpler terms, it means that the creditor has given up on trying to collect the debt and has decided to close the account.

Consumer Finance Protection Bureau (CFPB)

The Consumer Financial Protection Bureau (CFPB) is a federal agency in the United States that was created by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. The CFPB is responsible for …

Capital Gains

Capital gain refers to the profit that an individual or entity realizes when they sell an asset for a price that is higher than the price they initially paid for it. In other words, it is the difference between the purchase price of the asset and the price at which it is sold.

Cash Flow

Cash flow is the movement of money in and out of a business or individual’s accounts over a given period. It measures the amount of money that flows into and out of a business, indicating how much money the company has on hand to pay its debts, cover expenses, and make investments.

Bond

A bond is a financial instrument used by governments, corporations, and other organizations to raise capital. It represents a debt obligation, meaning that the issuer (borrower) promises to pay the bondholder (lender) a specified amount of interest over a fixed period of time and to return the principal amount at the end of the bond’s term.

Principal

In financial terms, the principal refers to the initial amount of money that is borrowed or invested, upon which interest is calculated or earned.  It is the original amount of money involved in a financial transaction, such as a loan or investment, and it represents the basis for all subsequent financial activity.

Amortization

Amortization refers to the process of spreading out the cost of an asset over its useful life. In financial terms, it is the gradual reduction of a loan or debt through regular payments of principal and interest over a specified period. Amortization is used primarily in two contexts: loans and intangible assets. 

Financial Investment

A financial investment is the practice of using money to purchase and hold assets for the purpose of making a profit. These investments can include stocks, bonds, mutual funds, real estate, commodities and other financial instruments. The goal of most investors is to accumulate wealth by creating a portfolio of assets that generate returns over time.

Gross National Product (GNP)

Gross National Product (GNP) is a measure of the total value of goods and services produced in a given country during a specific period, usually one year. It is used to analyze and compare the economic performance of countries over time. GNP measures not just domestic production but also income earned by citizens abroad, making it an important indicator of national wealth. 

Gross Domestic Product (GDP)

Gross Domestic Product (GDP) is a measure of the monetary value of all goods and services produced within a country in a given year. It is used to measure the size and strength of an economy, as well as its growth over time. GDP is calculated by adding up all spending on final goods and services produced within a nation’s borders during a specified period, usually a quarter or year.

What is the Consumer Price Index? (CPI)

The Consumer Price Index (CPI) is a measure of the average change in prices over time that consumers pay for a basket of goods and services. It is used by governments, central banks, and other financial organizations to measure inflation and make economic decisions.

Recession

A recession is a period of economic decline measured by a decrease in the Gross Domestic Product (GDP) for two or more consecutive quarters. During a recession, businesses often experience losses due to decreased consumer spending. Unemployment may also increase as companies reduce their workforce and lay off employees. 

Inflation

Inflation is a sustained rise in the general level of prices for goods and services. It is measured as an annual percentage increase. As inflation rises, every dollar you own buys a smaller percentage of a good or service. In other words, inflation reflects a decrease in the purchasing power of each individual unit of currency.

Interest

In financial terms, interest is the cost of borrowing money. It is usually expressed as a percentage rate that must be paid by the borrower to the lender for the use of their funds. Interest can also refer to the return you earn on an investment or savings account, or it could be used in reference to dividends earned from stocks or other investments. 

Federal Funds Rate

The Federal Funds Rate is the interest rate at which banks and other depository institutions lend or borrow money to each other overnight on an uncollateralized basis. 

Extinguishment of Debt

Extinguishment of debt refers to the termination or cancellation of a debt obligation. This means that the borrower is no longer obligated to repay the debt, and the lender no longer has a claim on the borrower’s assets or future earnings. Debt extinguishment can happen in several ways, including: debt forgiveness, debt restructuring, debt buyback, and debt write-off.

Demand Note

A demand note is a type of financial instrument that represents a debt owed by one party to another. 

Closed-End Credit

Closed-end credit refers to a type of loan or credit in which the amount borrowed is set in advance and the loan is repaid over a fixed period of time in installments, typically through monthly payments. This type of credit is also known as installment credit.

Secured Debt

Secured debt refers to a type of debt that is backed by collateral, which serves as security for the loan. This means that the lender has a claim on a specific asset or group of assets if the borrower fails to repay the loan according to the agreed-upon terms. In other words, the collateral provides the lender with a level of protection in the event of a default by the borrower.

Unsecured Debt

Unsecured debt refers to a loan or debt that is not backed by collateral. Unlike secured debt, where the borrower provides collateral, such as property or assets, to secure the loan, unsecured debt is issued based on the creditworthiness and reputation of the borrower. 

Prepayment Penalty

A prepayment penalty is a fee imposed on a borrower who pays off their loan earlier than the agreed upon maturity date. This type of penalty is typically found in fixed-rate loans, such as mortgages, and is designed to compensate the lender for the potential loss of income from interest payments that would have been received if the loan had been held until maturity.

Individual Retirement Account (IRA)

An Individual Retirement Account (IRA) is a type of account that is specifically designed to help individuals save for retirement. IRAs offer tax advantages and allow individuals to save money in a variety of investments, such as stocks, bonds, and mutual funds.

Amortization

Amortization in financial terms refers to the process of paying off a debt over a period of time through regular payments. 

The payments are structured to include both principal and interest, with the principal component gradually reducing over time. Amortization is commonly used for large debt obligations such as mortgages, auto loans, and student loans.

Accrued Interest

Accrued interest refers to the interest that accumulates on a debt instrument such as a bond, loan or savings account, over a specified period of time. It represents the growth in the value of the debt due to the accumulation of interest over a period of time.

Internal Revenue Service (IRS)

The Internal Revenue Service (IRS) is a U.S. government agency that is responsible for the collection of taxes and enforcement of tax laws. The IRS is part of the Department of the Treasury and was established in 1862. 

Debt Financing

The borrower (i.e. the company) promises to repay the lender (e.g. a bank) with interest over a set period of time. Unlike equity financing, where the lender receives ownership in the company in exchange for funding, debt financing does not result in the lender having any ownership or control over the borrower.

Unsecured Loan

An unsecured loan is a loan that is not backed by collateral. This means that the lender does not have a claim to any specific assets of the borrower in the event of default.

Fair market value (FMV)

Fair market value (FMV) is the price at which an asset would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or sell and both having reasonable knowledge of relevant facts. 

Refinancing

Refinancing is the process of obtaining a new loan to replace an existing one. The most common reasons to refinance include reducing the interest rate, shortening the loan term, or changing the type of loan.

Insolvency

Insolvency refers to the state of being unable to pay debts as they come due. It is a financial term that is often used to describe a company or individual that is facing financial difficulties and is unable to meet its financial obligations.

Grace Period

A grace period is a specified period of time after the due date of a payment during which a borrower can make the payment without incurring any additional charges or penalties. This period is typically found in loan agreements, credit card agreements, and other financial contracts.

Debtor

A debtor is an individual or entity that owes money to another individual or entity. In the context of financial transactions, a debtor is a person or organization that has borrowed money and is required to repay the loan, along with any interest or additional charges, at a later date.

What is a Debt Collector?

A debt collector is an entity that tracks down and collects payments on overdue debts. A debt collector may be an attorney, a credit collection agency, or even the original creditor, depending on the situation.

Creditor

A creditor is any person or organization to whom money is owed. This can include banks, individuals, businesses and government entities. When a consumer takes out a loan, they agree to pay the creditor in accordance with the terms of the loan agreement.

What is a 401(k)?

A 401(k) is a retirement savings plan sponsored by an employer. It lets workers save and invest a piece of their paycheck before taxes are taken out. Taxes aren’t paid until the money is withdrawn from the account.

The Truth in Lending Act

The Truth in Lending Act (also known as the TILA) is designed to promote the informed use of consumer credit. It requires lenders to provide customers with clear and accurate information regarding loan terms and conditions, such as interest rates, fees, repayment schedules, prepayment penalties, and total cost of borrowing.

Secured Loan

A secured loan is a type of loan that is backed by collateral, which is an asset that the borrower pledges as security for the loan. This collateral serves as a guarantee for the lender that they will be able to recover their funds if the borrower defaults on the loan.

Annual Percentage Rate

An annual percentage rate (APR) is a measure of the cost of borrowing money, expressed as a yearly interest rate. It is typically used to compare different loan or credit products, as it takes into account not only the interest rate charged on a loan, but also any fees or additional charges that may be associated with the loan.

Loan Officer

Federal Reserve System

Home Equity

Line of Credit

A line of credit is a type of loan that allows a borrower to access a specific amount of money that they can borrow and repay as needed, rather than borrowing a set amount all at once. A line of credit can be useful for individuals or businesses that need to borrow money on an ongoing basis or for unexpected expenses.

Fair Credit Reporting Act (FCRA)

The Fair Credit Reporting Act (FCRA) is a federal law that regulates the collection, dissemination, and use of consumer credit information. It was enacted in 1970 to protect consumers from inaccurate or biased credit reporting and to provide them with more control over their personal credit information.

Subsidized loan

A subsidized loan is a type of financial assistance provided by the government or other organization to help individuals or families pay for education or other expenses. The purpose of a subsidized loan is to make it easier for people to afford the cost of education or other necessities by reducing the amount of money they have to pay back.

Unsubsidized loan

An Unsubsidized loan is a type of student loan that requires repayment without the help of any financial assistance or subsidies. These types of loans are funded by the federal government and require students to pay interest on their loans while they are in school. This can make it a more expensive option than subsidized loans, but allows for greater flexibility in terms and conditions for repayment.

Promissory Note

A promissory note is a written promise to pay a specific amount of money at a specified date. Promissory notes are typically issued by borrowers and used as evidence of debt owed, or by lenders as security for repayment.

Federal Trade Commission

The Federal Trade Commission (FTC) is a US government agency that works to protect consumers and promote competition in the marketplace. The FTC was established by Congress in 1914, and it has been responsible for enforcing various laws aimed at preventing unfair or deceptive practices.

Disbursement

Disbursement refers to the distribution of funds, usually by a group or organization. For example, a government may disburse grants or loans to individuals or businesses in need of support. Disbursement can also refer to an organization’s own expenses. For example, when deciding on how much money it will spend in a given month, a company may separate its expenditures into categories such as payroll, benefits and perks for employees, and “miscellaneous” expenses for office supplies and other items.

What does default mean?

Default is the failure to repay a debt. When you default on a debt, it means you’re unable to fulfill your obligations under that loan agreement.

Loan Forgiveness

Loan forgiveness is a type of debt relief program that allows you to have some or all of your student loans forgiven based on your employment, income level, and other qualification criteria.

What is a Lien?

A lien is a legal claim that gives a lender or creditor the right to take and sell your property. Read more about liens.

What is Delinquent Debt?

Delinquent debt is a term used to describe debt that has not been paid on time, or even at all.

What is Forbearance?

Forbearance is when a creditworthy borrower faces temporary hardship and is unable to meet their obligations, the lender may decide to refrain from collecting on the debt. Forbearance allows the borrower additional time to repay the debt.

Foreclosure

Foreclosure is the legal process by which a lender repossesses a property from its owner when the borrower does not make payments on their loan.

Dependent

A dependent is someone who relies on another individual for the financial support they need to meet their basic expenses. An individual can be a dependent of different people throughout their life, such as parents, spouses, partners, or even employers.

What is Debt?

Debt is money that you owe to another person or company. It usually comes in the form of a loan, where you borrow money and then have to pay it back with interest.

Liquidation

Liquidation is a process in which assets of a company are sold off to settle its debts.

What is an Interest Rate?

Interest rates are the cost of borrowing money. The amount charged for this loan is commonly referred to as the interest rate. Interest rates can vary based on several factors, including the amount borrowed and your credit history.

Debt Ceiling

Debt ceiling is a term that refers to the maximum amount of money that can be legally borrowed by the US government.

What is a Guarantor?

A Guarantor is the person who promises that a borrower will pay back his or her debts.

Debt Consolidation

Debt consolidation is the process of combining all your debt (credit card, mortgage, student loan) into one monthly payment. A consolidated debt is paid off with a single loan.

What is a Credit Report?

A credit report is a detailed record of an individual’s credit history, including their past and current loans and payment habits. This information is used by lenders to determine an individual’s creditworthiness when applying for loans or other forms of credit.

Acceleration

Acceleration, in finance, refers to the speeding up of a financial obligation, such as a loan or mortgage. This can happen voluntarily, as in the case of prepayment, or involuntarily through default. In either case, it can have significant consequences for both the debtor and creditor.

Liability

In finance, liability refers to an obligation or debt that an individual or company is responsible for repaying. This can include items such as loans, credit card debt, and unpaid taxes. Liabilities must be managed carefully in order to maintain financial stability and avoid defaulting on payments.

What is Escrow?

Escrow is a financial arrangement where a neutral third party holds and regulates payment of the funds required for two parties involved in a given transaction. It helps to ensure that both parties fulfill their obligations in the transaction before any exchange of money takes place.

What is a FICO Score?

A FICO (Fair Isaac Corporation) Score is a measure of creditworthiness, calculated using information from the consumer’s credit report.

What is Bankruptcy?

Bankruptcy is a legal process where an individual or business unable to pay their debts can get a fresh start. It allows them to either restructure or eliminate their debt obligations and protect their assets from creditor actions.

Home Equity Loans

A home equity loan is a type of loan in which the borrower uses their home as collateral. The loan amount is determined by the equity in the home, or the difference between the property’s market value and any outstanding loans associated with it.

What is a Mortgage?

A mortgage is a loan used to purchase a property. The borrower makes monthly payments toward the loan, which go towards paying off the principal amount borrowed as well as interest on the loan.

What is an FHA Loan?

An FHA loan is a mortgage insured by the Federal Housing Administration. This type of loan allows for lower credit scores and a higher debt-to-income ratio compared to conventional loans.

What is a Credit Score?

A credit score is a numeric representation of an individual’s creditworthiness. It is calculated using information from the individual’s credit history, such as past loan and credit card payments.

What is a PPP loan?

A PPP loan, also known as a Paycheck Protection Program loan, is a type of loan offered through the Small Business Administration (SBA) designed to help small businesses with payroll and certain other expenses during the COVID-19 pandemic.

What is Equity in Regard to Finance?

Equity, in finance, refers to the value of ownership in a company. This can be measured by subtracting the company’s liabilities from its assets. In other words, equity represents the portion of a company that is owned by its shareholders.

What is a Loan?

There are several types of loans available, including personal loans, home loans, student loans, and business loans. Each type of loan has its own terms and conditions, which the borrower must agree to before taking out the loan.

What is a credit card?

A credit card is a plastic card that gives the cardholder a certain amount of credit to spend. There are many different types of credit cards, each with its own set of benefits and drawbacks.