Do bankers speak a different language? It can definitely seem that way.
The financial world has its own language and before you take out a loan, it’s important you learn the basics of that language. Regional Finance® believes having a good understanding of key words 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 when applying for a loan.
Gross income vs. net income:
Collateral is something of value that you own, like your car/truck or a TV/music system, etc., that you use to back your commitment to repay a loan. If you do not repay your loan, the lender has the right to take your collateral.
Secured loan vs. unsecured loan:
Debt to income ratio or debt ratio:
Debt ratio is a way of comparing the debts you must pay with how much money you make.
How To Figure Your Debt Ratio:
When you take out an installment loan, you get a check for the loan amount minus any prepaid fees. Then you pay the money back plus interest in regular payments (usually each month) for the agreed-upon term (number of months or years) of the loan.
If your loan has a fixed interest rate (does not change over the life of the loan), your payments will be the same every month.
A co-signer is a person 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 if you do not. 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:
Payoff amount vs. total payment:
For loans, the payoff amount is the balance owed at any point in time in order to fully repay the loan. This amount changes daily due to accruing interest. Most lenders 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.
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.