The financial world has its own language and before you take out a personal loan, it’s important you learn the basics of that language and banking terminology. The professional lenders at Regional Finance® believe having a good understanding of banking terminology can help you make smarter borrowing decisions and make the process of getting a loan less stressful. Here’s a quick overview of the key financial terms you’ll hear and should understand when you apply for a personal loan.
Collateral is something of value that you own that you use to secure a loan with an agreement that you will forfeit the item if you fail to repay the loan. Common collateral types include TV/music systems, real estate, or vehicles. If you do not repay your loan, the lending company has the right to take your collateral.
Debt ratio, also called debt-to-income ratio, is a way of comparing the debts you must pay with how much money you make.
When you take out a personal installment loan, you get a check for the loan amount minus any prepaid fees. Then you pay the loan amount back [plus interest] in regular payments (usually monthly payments) for the agreed-upon term (number of months or years) of the installment loan.
If your personal loan has a fixed interest rate meaning that the loan interest rate does not change over the life of the loan, your installment loan payments will be the same every month.
A co-signer is a person who signs your loan application along with you. The co-signer can help you qualify for the loan and agrees to be responsible for paying off the loan amount if you are unable to do so. A good co-signer is someone with good credit and a steady income.
Some lenders require that the co-signer be a U.S. resident with a permanent address in the U.S.
Annual percentage rate (APR) is the yearly cost of a loan including interest and fees. The fees will vary depending on the type of loan you’re applying for, but can include:
For personal loans, the payoff amount is the balance owed at any point in time in order to fully repay the loan. This amount changes frequently due to accruing interest. Most lending and personal loan companies require you to contact them directly to obtain a payoff amount.
The total payment is the total amount you must pay over the term of the loan including the money borrowed, interest, and fees. The payoff amount may be less than the total payment, depending on when you pay off the loan and the interest rate of the loan.
With these basic banking terms understood, you have become well-versed in the personal loan process and more prepared the next time you decide to apply for a loan. Of course, if you have any additional questions about personal loans, Regional Finance is here to help. Contact us today or find a branch location nearest you.
You can prequalify for your loan online in just minutes. Or, if you prefer, call or stop by your local branch. Our loan specialists can answer any questions and help you fill out an application for the personal loan that fits your needs.