Loan and credit glossary

Amortization is paying off a loan through regular, scheduled payments that cover both interest and principal, so the balance reaches zero by the end of the term.

APR, or annual percentage rate, is the yearly cost of borrowing expressed as a rate. It includes the interest rate plus certain fees, such as an origination fee.

Collateral is an asset you pledge to secure a loan. If you do not repay as agreed, the lender can take the collateral to recover what it is owed.

A cosigner is a person who signs a loan with the borrower and agrees to repay it if the borrower does not. The loan appears on both people's credit reports.

A credit report is a record of your credit accounts and payment history kept by a credit bureau. Lenders review it when you apply for credit.

A credit score is a three-digit number that summarizes your credit report. Lenders use it as one factor when deciding whether to lend and on what terms.

Your debt-to-income ratio (DTI) compares your monthly debt payments with your gross monthly income. Lenders use it to judge how much more debt you can manage.

A fixed interest rate stays the same for the life of a loan, so your interest rate, and usually your monthly payment, does not change.

A hard credit inquiry is a credit check a lender runs when you formally apply for credit. It can lower your credit score slightly for a time.

An interest rate is the price a lender charges to borrow money, stated as a yearly rate on the balance you owe. It does not include most loan fees.

A loan term is the length of time you have to repay a loan, usually stated in months. It affects both your monthly payment and the total interest you pay.

An origination fee is a one-time charge some lenders take for processing a new loan. It is often deducted from the loan amount before the money reaches you.

A prepayment penalty is a fee some lenders charge if you pay off a loan early or pay down a large part of it ahead of schedule.

Prequalification is a preliminary review in which a lender estimates what it may offer you, usually based on a soft credit inquiry and information you provide.

A secured loan is backed by collateral, such as a car, savings or a home, that the lender can take if you do not repay as agreed.

A soft credit inquiry is a credit check that does not affect your credit score. It is often used to show what loan or card options may be available to you.

An unsecured loan is not backed by collateral. The lender relies on your credit history, income and other information when deciding whether to lend.

A balance transfer moves debt from one or more credit cards to another card, often one with a promotional rate for a limited time.

Debt consolidation means combining several debts, such as credit card balances, into one new loan or account with a single monthly payment.

Credit utilization is how much of your available revolving credit you are using, usually measured across all your credit cards and for each card.

On a credit card, the grace period is the time between the end of a billing cycle and the payment due date during which new purchases do not accrue interest.

A draw period is the stretch of time, often several years, during which you can borrow from a line of credit such as a HELOC.

A HELOC, or home equity line of credit, is a revolving credit line secured by your home. You can draw from it as needed during a set period, up to your limit.

A home equity loan lets you borrow a lump sum against the equity in your home, the difference between its value and what you owe. Your home secures the loan.

A loan-to-value ratio (LTV) compares the amount of a loan with the value of the asset securing it, such as your home.

Student loan refinancing replaces one or more existing student loans with a new private loan, with its own rate, term and lender.

A variable interest rate can change over the life of a loan, usually because it is tied to a benchmark rate. Your payment can rise or fall as the rate changes.

A business line of credit is a revolving credit line a business can draw from as needed, up to a limit, paying interest only on what it uses.

Time in business is how long a company has been operating. Business lenders use it, along with revenue and credit, when deciding whether to lend.

Comprehensive coverage pays for damage to your own car from events other than a collision, such as theft, fire, hail, flooding or hitting an animal.

A deductible is the amount you pay out of pocket on a covered insurance claim before your insurer pays the rest.

An insurance premium is the amount you pay for an insurance policy, usually monthly, every six months or yearly.

Liability coverage pays for injuries and property damage you cause to other people in an accident you are responsible for, up to your policy limits.