Amortization-
The
process
of fully
paying
off
indebtedness
by
installments
of
principal
and
earned
interest
over a
definite
time.
Annual
Percentage
Rate
(APR)-
The cost
of
carrying
a
balance
on a
loan
expressed
as an
annual
percentage.
To
calculate
the
amount
owed in
interest
each
month
divide
the APR
by 12.
For
example,
if the
APR is
18% the
monthly
rate is
1.5%.
Asset-
Anything
owned by
an
individual
that has
a cash
value.
This
includes
property,
goods,
savings
or
investments.
Assumption-
The
agreement
between
buyer
and
seller
where
the
buyer
takes
over the
payments
on an
existing
mortgage
from the
seller.
Assuming
a loan
can
usually
save the
buyer
money
since
this is
an
existing
mortgage
debt.
Average
Daily
Balance-
The
average
daily
balance
is a
method
used to
calculate
finance
charges.
It is
calculated
by
adding
the
outstanding
balance
on each
day in
the
billing
period,
and
dividing
that
total by
the
number
of days
in the
billing
period.
The
calculation
includes
new
purchases
and
payments.
Bad
Credit-
A term
used to
describe
a poor
credit
rating.
Common
practices
that can
damage a
credit
rating
include
making
late
payments,
skipping
payments,
exceeding
card
limits
or
declaring
bankruptcy.
"Bad
Credit"
can
result
in being
denied
credit.
Balance-
The
total
amount
of money
owed. It
includes
any
unpaid
balance
from the
previous
month,
new
purchases,
cash
advances,
and any
charges
such as
an
annual
fee,
late fee
or
interest.
The
balance
should
not be
confused
with the
monthly
payment
(the
minimum
payment
allowed
each
month),
which is
generally
2% - 5%
for
revolving
credit
cards.
Balance
Transfer-
Moving a
balance
(debt)
from one
credit
card to
another.
This is
often
done
with
special
checks
or
forms,
or may
be
offered
as an
option
on some
credit
card
applications.
The
usual
reason
is to
shift an
ongoing
debt to
an
account
with a
lower
interest
rate.
Bankruptcy-
Bankruptcy
is a
legal
declaration
of the
inability
to repay
debts.
Bankruptcy
should
be
viewed
as a
last
resort.
It will
have a
severe
impact
on a
credit
rating
and will
remain
on a
credit
report
for ten
years.
Furthermore,
bankruptcy
is not a
solution
in all
cases.
Federal
student
loans,
Federal
tax debt
and
child
support
are all
exempt
from
bankruptcy
protection.
Bankruptcy
agreements
vary but
there
are two
types of
agreements
that
most
people
choose:
Chapter
7 and
Chapter
13.
Chapter
7
In a
Chapter
7
agreement,
the
court
resolves
most
debts by
selling
assets
and
property
so that
the
filer is
given a
fresh
financial
start.
The
court
takes
all
assets
including
cars,
homes,
furnishings,
jewelry
or
anything
else of
value.
The
assets
are sold
to pay
off the
debt.
There
are some
debts
that a
person
may wish
to repay
on their
own
instead
of
having
the
court
resolve
it. This
is
called
reaffirmation.
Reaffirmation
is a
special
payment
plan
with the
court.
For
example,
if a car
loan is
reaffirmed,
the
person
keeps
the car
and
makes
payments
under
new
terms.
Chapter
7
bankruptcy
will not
eliminate
debts
due to
taxes,
child
support,
alimony,
student
loans,
court
fines or
personal
injury
caused
by
driving
drunk or
under
the
influence
of
drugs. A
Chapter
7 filing
will
remain
on a
credit
report
for 10
years.
Chapter
13
In a
Chapter
13
agreement,
the
court
creates
a debt
repayment
plan
that
allows
the
filer to
keep
their
property.
In order
to file
Chapter
13, a
person
must
have a
source
of
income
and
promise
to pay
part of
their
income
to
creditors.
The
court
allows
the
filer to
keep any
assets
that
have
debts
against
them if
they pay
them off
under
terms
determined
by the
court. A
Chapter
13
filing
will
remain
on a
credit
report
for 10
years.
With
Chapter
13,
there is
a better
chance
of
obtaining
future
loans
and
credit.
Beacon
Score-
This
is your
credit
score
that
creditors
look at
when
determining
if you
are
credit
worthy.
Your
Beacon
Score is
determined
by
negative
entries
such as
late
payments
which
would
decrease
your
score or
a
positive,
timely
payment
history
on your
accounts
which
would
increase
your
score.
Billing
Cycle-
The
number
of days
between
statement
dates.
This is
generally
about 25
days.
Buydown-
A lump
sum
payment
made to
the
creditor
by the
borrower
or by a
third
party to
reduce
the
amount
of some
or all
of the
consumer's
periodic
payments
to repay
the
indebtedness.
Cash
advance
loan-
a loan
where a
borrower
gets
cash
advanced
based on
his
paycheck.
These
loans
generally
up are
up $500
and must
be
repaid
on the
next
payday.
Closed-end
Credit-
Generally,
any loan
or
credit
sale
agreement
in which
the
amounts
advanced,
plus any
finance
charges,
are
expected
to be
repaid
in full
over a
definite
time.
Most
real
estate
and
automobile
loans
are
closed-
end
agreements.
Collateral-
Property
that is
offered
to
secure a
loan or
other
credit
and that
becomes
subject
to
seizure
on
default.
(Also
called
security.)
Conditionalities-
Extra
requirements
other
than
repayment
(such as
‘structural
adjustment’
policies)
demanded
by the
lender
before
new
loans
are
granted.
Cosigner-
Another
person
who
signs
for a
loan and
assumes
equal
liability
for it.
Credit-
The
promise
to pay
in the
future
in order
to buy
or
borrow
in the
present.
The
right to
defer
payment
of debt.
Creditworthiness-
A
creditor's
measure
of a
consumer's
past and
future
ability
and
willingness
to repay
debts.
Credit
Card-
Any
card,
plate,
or
coupon
book
that may
be used
repeatedly
to
borrow
money or
buy
goods
and
services
on
credit.
Credit
History-
A
record
of how a
person
has
borrowed
and
repaid
debts.
Credit
Scoring
System-
A
statistical
system
used to
determine
whether
or not
to grant
credit
by
assigning
numerical
scores
to
various
characteristics
related
to
creditworthiness.
Debt
service-
Total
payments
due on
loans
(repayments
plus
interest).
Default-
Failure
to meet
the
terms of
a credit
agreement.
Discharge-
A legal
terms
meaning
a court
has
erased
your
debt(s)
not to
be
confused
with a
"charge
off" or
"write
off"
which is
an
accounting
term
which
does not
erase
debts.
Discount-
An
amount
deducted
from the
regular
price
for
those
who
purchase
with
cash
instead
of
credit.
Finance
Charge-
The
total
dollar
amount
paid to
get
credit.
Fixed
Rate-
A
traditional
approach
to
determining
the
finance
charge
payable
on an
extension
of
credit.
A
predetermined
and
certain
rate of
interest
is
applied
to the
principal.
Graduated
Payment-
Repayment
terms
calling
for
gradual
increases
in the
payments
on a
closed-end
obligation.
A
graduated
payment
loan
usually
involves
negative
amortization.
Liability-
Legal
responsibility
to repay
debt.
Lien-
a notice
a
creditor
attaches
to your
property
that
tells
the
world
that you
owe the
creditor
money.
You
cannot
sell the
property
without
paying
off the
creditor
because
the lien
makes
the
"title"
(history
of
ownership)
cloudy
and a
new
owner
won't
buy
under
those
conditions.
Negative
Amortization-
Repayment
schedule
calling
for
periodic
payments
that are
insufficient
to fully
amortize
the
loan.
Earned
but
unpaid
interest
is added
to the
principal,
increasing
the
debt.
Eventually,
payments
must be
rescheduled
to fully
pay off
the
debt.
Open-end
Credit-
A line
of
credit
that may
be used
repeatedly
up to a
certain
limit,
also
called a
charge
account
or
revolving
credit.
Open-end
Lease-
A
lease
that may
involve
a
balloon
payment
based on
the
value of
the
property
when it
is
returned.
(Also
called
finance
lease.)
Overdraft
Checking
Account-
A
checking
account
associated
with a
line of
credit
that
allows a
person
to write
checks
for more
than the
actual
balance
in the
account,
with a
finance
charge
on the
overdraft.
Payday
Loan
- a loan
where a
borrower
gets
cash
advanced
based on
his
paycheck.
These
loans
generally
up are
up $500
and must
be
repaid
on the
next
payday.
Points-
Finance
charges
paid by
the
borrower
at the
beginning
of a
loan in
addition
to
monthly
interest;
each
point
equals
one
percent
of the
loan
amount.
Principal-
Amount
of the
loan.
Renegotiable
Rate-
A
type of
variable
rate
involving
a
renewable
short-
term
"balloon"
note.
The
interest
rate on
the loan
is
generally
fixed
during
the term
of the
note,
but when
the
balloon
comes
due, the
lender
may
refinance
it at a
higher
rate. In
order
for the
loan to
be fully
amortized,
periodic
refinancing
may be
necessary.
Reschedule-
Revised
timetable
for loan
repayments,
usually
granting
longer
repayment
periods
and
often
involving
new
loans to
pay old
ones
Security
Interest-
The
creditor's
right to
take
property
or a
portion
of
property
offered
as
security.
Seller's
Points-
A lump
sum paid
by the
seller
to the
buyer's
creditor
to
reduce
the cost
of the
loan to
the
buyer.
This
payment
is
either
required
by the
creditor
or
volunteered
by the
seller,
usually
in a
loan to
buy real
estate.
Generally,
one
point
equals
one
percent
of the
loan
amount.
Service
Charge-
A
component
of some
finance
charges,
such as
the fee
for
triggering
an
overdraft
checking
account
into
use.
Statement-
The
monthly
bill
from a
credit
card
issuer
that
describes
and
summarizes
the
activity
on an
account.
A
statement
includes
the
outstanding
balance,
purchases,
payments,
credits,
finance
charges
and
other
transactions
for the
month.
Statement
Date-
The date
on which
a
statement
is
generated,
and the
month's
finance
charges
(interest)
are
added to
the
balance.
Surcharge-
An extra
charge
imposed
on those
who
purchase
with a
credit
card
instead
of cash.
(Currently,
surcharges
for
credit
card
purchases
are
prohibited.)
Variable
Rate-
A
variable
rate
agreement,
as
distinguished
from a
fixed
rate
agreement,
calls
for an
interest
rate
that may
fluctuate
over the
life of
the
loan.
The rate
is often
tied to
an index
that
reflects
changes
in
market
rates of
interest.
A
fluctuation
in the
rate
causes
changes
in
either
the
payments
or the
length
of the
loan
term.
Limits
are
often
placed
on the
degree
to which
the
interest
rate or
the
payments
can
vary.
