Definitions

ACH (Automated Clearing House)

An electronic network used to move money between bank accounts, often used for loan deposits and automatic payments.

Annual Percentage Rate (APR)

The yearly cost of credit, including interest and certain fees, expressed as a percentage. APR is not the same as the interest rate in your contract.

Amount financed

The amount of credit provided to you, after subtracting any prepaid finance charges.

Balance

The amount still owed on a loan or credit account.

Bankruptcy

A legal proceeding in federal court for people or businesses that cannot repay their debts. A bankruptcy can stay on a credit report for up to 10 years.

Budget

A plan for managing income, spending, and saving.

Charge-off

A debt a creditor has written off as unlikely to be collected. The debt is still owed and may be sent to collections.

Checking account

A bank account used for everyday deposits and payments, such as by debit card, check, or electronic transfer.

Collateral

An asset pledged to secure a loan, which the lender may take if the loan is not repaid.

Co-signer

A person who signs a loan with the borrower and agrees to be responsible for repayment if the borrower does not pay.

Credit

An agreement to receive money, goods, or services now and pay for them later.

Credit bureau

A company that collects credit history and provides credit reports to lenders. Experian, Equifax, and TransUnion are the three largest in the U.S.

Credit counseling

Guidance, often from nonprofit organizations, to help consumers manage debt and create a budget.

Credit limit

The maximum amount you can borrow on a credit card or line of credit.

Credit report

A record of your credit history, including accounts, payment history, balances, and public records such as bankruptcies.

Creditor

A person or business to whom money is owed.

Debt consolidation

Combining several debts into one new loan, so you make a single monthly payment, ideally at a lower rate.

Default

Failing to repay a loan or meet the terms of a loan agreement.

Delinquency

Being late on a required payment.

Direct deposit

An electronic transfer of funds straight into a bank account.

Equal Credit Opportunity Act (ECOA)

A federal law that prohibits discrimination in any aspect of a credit transaction.

E-signature

An electronic signature that is legally binding under the federal E-SIGN Act of 2000.

Fair Credit Reporting Act (FCRA)

A federal law that gives you the right to see what credit bureaus report about you and to dispute inaccurate information.

Fair Debt Collection Practices Act (FDCPA)

A federal law that protects consumers from abusive, unfair, or deceptive debt collection practices.

Finance charge

The total dollar cost of credit, including interest and certain fees.

Fixed interest rate

An interest rate that does not change during the term of the loan.

Installment loan

A loan repaid in a set number of scheduled payments, usually of equal amounts, over a fixed term.

Interest

The cost charged by a lender for borrowing money.

Late payment fee

A charge for a payment received after its due date.

Lender

A person or business that makes loans.

Loan agreement

The legal contract that sets out the terms and conditions of a loan.

Payment schedule

The number, amounts, and due dates of the payments required to repay a loan.

Refinance

Replacing an existing loan with a new one, often to get a lower rate or different terms.

Right of rescission

For certain loans secured by your home, a federal right to cancel within three business days.

Secured loan

A loan backed by collateral, such as a car or home.

Simple interest

Interest calculated only on the outstanding principal balance.

Total of payments

The total amount you will have paid after making all scheduled payments.

Truth in Lending Act (TILA)

A federal law requiring lenders to disclose the APR, finance charge, and other key terms before you sign.

Unsecured loan

A loan not backed by collateral, approved based on your credit and ability to repay.

Variable interest rate

An interest rate that can change over time based on a benchmark index.