Financial Glossary

Annual Percentage Rate (APR): All interest and charges payable on the loan, as a percentage of the total amount which was borrowed.

 

Collateral: Personal belongings and assets such as houses, cars, and savings deposits which are offered as a guarantee that the loan will be paid. Short’-term loans do not always require collateral.

 

Credit Agency: An organisation which is responsible for monitoring the credit history of all consumers and loan applicants. Credit agencies also record which applicants have been blacklisted.

 

Finance Charges: The total amount payable in interest and other charges in order for credit or a loan to be issued.

 

Fixed Interest Rate: An interest rate that does not change during the period of the loan.

 

Index: A measure of the economy used by banks and credit providers to determine changes in variable interest rates.

 

Interest: A fee that is paid in order to borrow money, calculated as a percentage of the amount borrowed.

 

Line of Credit: A type of on-going loan with a variable interest rate. This type of loan can be paid off and borrowed against repeatedly without having to apply for a new loan each time.

 

Note (Promissory Note): A written agreement to repay a loan over a set time at a certain interest rate.

 

Point: One percent (%) of the loan amount.

 

Pre-payment Penalty: A penalty which is levied on a borrower who repays a loan too soon – before they loan period has expired.

 

Prime Rate: The best interest rate charged by lenders on a short-term loan. APRs are calculated as the prime rate plus an extra amount.

 

Principal: The amount borrowed, excluding interest.

 

Secured Personal Loan: A personal loan with a fixed interest rate. This type of loan usually requires collateral.

 

Term: The period in which the loan must be repaid.