The ability to walk into a financial institution and borrow money is a reward for taking care of your credit. When it comes to borrowing money, there is a glossary of loan terminologies you need to know.
Each type of loan will have words specific to the terms of that loan. What applies to a home loan may not apply to a car loan. When a person is seeking a loan geared towards people with bad credit, the glossary will be different.
Keep reading for 9 loan terms everybody should know when taking out a quick loan.
Loan Terminologies You Should Know for Bad Credit Loans
The loan glossary for bad credit quick loans is pretty straight forward. These loans often bypass typical lending requirements because they are not funded by standard financial institutions.
They are easier to qualify for but have higher interest rates and less than favorable repayment terms.
1. Annual Percentage Rate
Annual Percentage Rate is the interest rate based on the amount of interest you will pay in one year. Borrowers need to understand their APR because it will give them a good idea of what the loan will actually cost in interest and fees.
2. Automatic Clearing House
Automatic Clearing House (ACH) is a loan term that deals with the repayment of a loan. When you set-up ACH with a lender you’re granting them permission to debit your bank account based on the repayment schedule.
Collateral is something of value used to secure a loan. Car loans and mortgages are forms of collateral loans. If you are unable to repay the loan, the car will be repossessed and the home can be foreclosed on.
Default is loan terminology meaning you have failed to honor the terms of the loan. Borrowers are typically considered to be in default after becoming 30 days late on a loan payment.
5. Interest-Only Loan
An interest-only loan is a loan that allows the borrower to only pay the interest on a loan for a set period of time. Afterward, the payment increases when the principal is added in.
6. Line of Credit
A line of credit is a maximum amount that a borrower qualifies for. Instead of taking the full amount, he makes withdrawals as needed. The borrower only pays on the actual amount borrowed.
7. No Credit Check Loan
A no-credit-check loan is a loan geared towards people with poor credit. It is considered to be a predatory loan because of the terms and conditions.
Preapproval is a marketing term lenders often use to lure in borrowers. It is based on the lowest standards to qualify for the loan. Borrowers still have to qualify for the loan.
9. Title Loan
A title loan is a collateral loan where the borrower secures the loan with their car title. It is risky because you could lose your vehicle if you fail to comply with the terms of a loan.
Now That You’re Loan Savvy
These are basic loan terminologies borrowers should understand. If you found this article useful, read more in our finance section.