Loan & lending terms, defined.

Plain-English definitions of every term you'll run into when shopping a personal, business, auto, or refinance loan. 26 entries.

Amortization

The schedule that splits each fixed payment into principal and interest. Early payments are mostly interest; late payments are mostly principal.

APR

Annual Percentage Rate — the all-in yearly cost of a loan including the interest rate plus origination fees and other finance charges. The number to compare across lenders.

Balloon payment

A single large payment due at the end of a loan when the regular payments don't fully amortize the principal.

Charge-off

When a lender writes off a delinquent loan as a loss after 120-180 days of non-payment. Stays on your credit report for 7 years.

Cosigner

A second person who legally agrees to repay a loan if the primary borrower defaults. Often used to qualify thin-file or low-score borrowers.

Credit score

A 300-850 number summarizing your credit risk. FICO and VantageScore are the two scoring models lenders actually use.

Debt consolidation

Rolling multiple debts — usually high-rate credit cards — into a single fixed-rate installment loan with one monthly payment.

DSCR

Debt-Service Coverage Ratio — a business-lending metric. Net operating income divided by total debt service. Most lenders want at least 1.25x.

DTI

Debt-to-Income ratio — your monthly debt payments divided by your gross monthly income. Most personal-loan lenders cap DTI around 40-45%.

Fixed rate

An APR that stays the same for the full loan term. Predictable monthly payments — the default on personal and most auto loans.

Hard inquiry

A credit check that runs when you formally apply for credit. Each hard inquiry drops your score 5-10 points and stays on your report for 2 years.

HELOC

Home Equity Line of Credit — a revolving variable-rate credit line secured by your home equity. Draw and repay like a credit card.

Interest rate

The lender's charge for borrowing money, expressed as a yearly percentage of the unpaid principal. Lower than APR because it excludes fees.

LTV

Loan-to-Value ratio — the loan amount divided by the appraised value of the collateral. Higher LTV means more lender risk and a higher rate.

Origination fee

A one-time fee a lender charges to process a loan, usually 0-8% of the amount borrowed. Either deducted from your funds or rolled into the balance.

Prepayment penalty

A fee some lenders charge for paying a loan off early. Rare on personal loans; more common on mortgages and business loans.

Prequalification

A lender's preliminary estimate of the rate and amount you'd likely be offered, based on a soft credit pull. Not a guaranteed approval.

Prime rate

The benchmark rate large banks charge their best corporate borrowers. Most variable-rate consumer loans price at prime plus a margin.

Principal

The amount you actually borrowed (and still owe), separate from the interest charges that accrue on top.

Refinance

Replacing an existing loan with a new one at a better rate or term. Most common on mortgages, auto loans, and student loans.

Secured loan

A loan backed by collateral — a car, a home, or a savings account. Lower rates than unsecured loans because the lender can seize the asset if you default.

Soft inquiry

A credit check that doesn't affect your score — used for prequalification, employer screening, or your own credit pulls.

Term

The length of the loan, in months. Longer terms mean lower monthly payments but more total interest paid.

Underwriting

The lender's process of evaluating your credit, income, debts, and collateral to decide whether to approve the loan and at what rate.

Unsecured loan

A loan with no collateral — approval and APR depend entirely on your credit, income, and DTI. Personal loans and credit cards are the common examples.

Variable rate

An APR that adjusts periodically based on a benchmark like prime or SOFR. Starts lower than fixed rates but the payment can rise.