Glossary of Terms

• Accrued Interest: The accumulation of interest that is added to the loan.
  
• Amortization: The process of gradually eliminating a debt by making periodic payments to reduce it.
  
• Annual Percentage Rate (APR): The actual interest charged when all finance charges and up-front fees are included. Federal Truth-in-Lending laws require all creditors to state the cost of their credit in terms of both the finance charge and the APR.
  
• Capitalized Interest: Accrued interest which is added to the principal creating a new and higher balance.
  
• Compounded Loan: As interest is periodically calculated and added to the principal, it becomes part of the new principal amount for the next periodic calculation of interest to be added. Thus interest is charged on the interest.
  
• Consumer Debt: Debts incurred for personal, as opposed to business or educational, needs.
  
• Co-signer or Co-borrower: A person who signs a promissory note that is also signed by one or more other parties. All parties take responsibility for the debt.
  
• Credit Burea: A company that collects and sells information about how people handle credit. It issues credit reports that list how individuals manage their debts and make payments. The three major national credit bureaus are Equifax, Experian (formerly TRW) and Trans Union.
  
• Credit Report: A report that contains information about your borrowing habits and money-managing skills. Lenders use it to determine whether to approve a loan and to set the terms. A person with a good credit report is likely to get a better interest rate than someone with a poor credit report.
  
• Credit Score/Rating: A judgment of someone's ability to repay debts, based on current and projected income and history of payment of past debts. Sometimes expressed as a number.
  
• Creditworthy: A determination that the applicant has the ability to repay the loan upon examination of the applicant's credit history. Factors in the evaluation may include a minimum monthly income, previous experience with credit, credit bureau report and credit score.
  
• Default: The failure of the borrower to make an installment payment when due, or failure to meet other terms of the promissory note, to the extent that a reasonable conclusion is that the borrower does not intend to pay.
  
• Deferment: An approved postponement of payment for a specified time.
  
• Delinquency: Failure of the borrower to make a loan payment when due, or failure to meet other terms of the promissory note, but insufficient time has elapsed to classify the borrower as in default.
  
• Direct Debit: The automatic transfer of money from customer accounts for bill payment.
  
• Disbursement Fees: A fee charged by the lender when the loan is disbursed, or paid, to the borrower.
  
• Disclosure Statement: Statement of actual costs to the borrower for a loan including the interest rate and any additional finance charges.
  
• Expenses: Costs incurred. Includes living and food costs, transportation, debt payments, entertainment, etc. When attending school expenses also include tuition, fees and books.
  
• Fees: Charges that may be assessed to your account based on any number of activities or reasons. Types of fees include: origination fee, disbursement fee, repayment fee, supplemental fee, and prepayment penalty.
  
• Finance Charge: The cost in dollars of borrowing funds from a lender. This will be determined by the interest rate applied to the amount borrowed as well as any fees added and the length of time that elapses before the loan is fully repaid.
  
• Fixed Rate: An interest rate on a loan that does not change for the life of the loan.
  
• Forbearance: A temporary postponement or extension of payments or an agreement to reduce payments by special arrangement between the borrower and the lender.
  
• Garnishment: The automatic withholding of a specific amount of a borrower's wages or income to pay a delinquent or defaulted loan.
  
• Grace Period: The time period after a borrower leaves school or drops below half-time enrollment during which he/she is not required to make payments on a student loan. The duration of the grace period for Stafford loans is 6 months. Grace periods on private loans vary.
  
• Home Equity Loan: A loan based on the amount of equity a homeowner has in the property. The interest paid on a home equity loan is usually deductible.
  
• Interest (on loans/credit cards): A charge for the use of money. Interest is calculated as a percentage rate of the loan/credit account principal. The interest rate can be fixed, which means it does not change over the life of the loan, or the rate can be variable, in which case it changes periodically. The percentage rate may be tied to one of several indexes such as the Prime Rate, LIBOR or U.S. Treasury Bills.
  
• Interest Deductibility: A government sponsored tax benefit for borrowers in repayment on their federal student loans. A borrower may be able to claim a tax deduction on the amount of interest he/she has paid during the year.
  
• Interest Rate: The rate used in the calculation of the finance charge. The rate may be either fixed (unchanging) or variable (based upon an index or market condition).
  
• Lender: The bank, credit union or other approved entity from which a borrower obtains a loan.
  
• Maturity Date: The due date upon which the loan is expected to be fully paid.
  
• Personal Loan: A personal loan is a loan from a lender that is not secured by any property.
  
• Prepayment: Any amount of money that is paid on a loan prior to the scheduled time--during a deferment or grace period (if applicable) or simply an extra payment during the repayment period. Usually, but not always, prepayment reduces cost and carries no penalty.
  
• Prepayment Penalty: A lender's charge to the borrower for paying off the loan before the end of the term.
  
• Private Loan: Uninsured educational loan funded by a lending institution. As opposed to federal educational loans that are insured by the government. Private loans are also called Alternative loans.
  
• Principal: The amount of the borrowed loan.
  
• Promissory Note: The legal contract between the borrower and lender that binds the borrower to repayment of the loan and specifies the terms and conditions involved, such as the interest rate, maturity date, penalty charges, and deferment privileges (if any).
  
• Repayment Schedule: The plan for monthly installment payments on a loan. The specific monthly amount is determined by the total amount of the loan and length of the repayment period, and, is normally calculated to amortize the loan evenly throughout the repayment period. Much of the funds from earlier payments are channeled to pay interest and a small portion of the principal, but as the principal decreases over time, less interest is charged and more of the payment is channeled to repay the principal. Sometimes a minimum monthly payment applies.
  
• Secondary Market: A state or private agency (such as Sallie Mae) which purchases a loan from the lender and thus becoming the new owner of the loan (the money is now owed to the new owner).
  
• Servicer: An organization (such as Sallie Mae or Great Lakes Higher Education Corporation) that acts on behalf of the lender or owner of the loan (sometimes referred to as the holder of the loan) to handle the business transactions with the borrower. This may include billing for repayment, processing deferment forms, processing requests for forbearance, sending out notices to borrowers about the status of their loans, and collecting on delinquent accounts. Some lenders service the loans themselves rather than hiring an outside loan servicer.
  
• Terms and Conditions: These are the characteristics that spell out the rights and privileges of both the borrower and the lender and what actions each may or must take. Examples include interest rate, length of repayment, repayment options (equal or graduated repayments), deferment options, late payment charges, and delinquency or default consequences.
  
• Unsecured Debt: Debt that is not guaranteed by the pledge of any collateral. Most credit cards are unsecured debt, which is a main reason why their interest rate is higher than other forms of lending, such as mortgages, which employ property as collateral.
  
• Up-Front Fees: Charges made to the borrower at the time the loan is disbursed. Application, origination, insurance and guarantee fees fall into this category. An application fee is not refundable in the event the loan is denied (it pays for the credit search). Guarantee, insurance, and origination fees are charged on a percentage basis of the total amount borrowed.