10 Must-Know Key Financial Loan Terms

by Lauren Beichner

Marketing Specialist


Borrowing money can be very overwheming, especially when you don't know what all the terms mean. We've all been there. We've all been confused when reading a long, detailed financial document. That's why today we are going to share with you the top 10 financial terms you'll need to know if you are getting a loan to make sure you are as prepared as you can be. 

1. Amortization

Amortization refers to when you expand payments over multiple periods. Essentially, amortization is when you make set payments to pay off a loan balance over a certain amount of time. 

2. Annual Percentage Rate (APR)

Annual Percentage Rate (APR) is the annual rate of interest on loans. It is expressed as a percentage that represents the yearly cost of the rate on a loan. 

3. Collateral 

Collateral is used as a way to secure a loan in case you won't be able to pay a loan on time. If a lender may be worried that you won't meet loan payment deadlines, they will have you use a valuable asset or another source of money as collateral to pay the loan. 

4. Co-signer 

A co-signer is someone who agrees to pay a loan if the borrower can't pay the loan themselves. Essentially, the Co-signer acts as a back up to the borrower if the borrower can't make the payment. 

5. Down Payment

A down payment is the amount of money required upfront on a loan. The down payment is the amount that the borrower covers and then the lender provides the rest of the money until you pay it off. 

6. Line of Credit 

A line of credit is the set amount of money that a lender has agreed to loan to you. Similar to a credit card, a line of credit can be used for any legal purpose unlike an auto loan or a mortgage. 

7. Loan Term 

A loan term is the period of time that a borrower will be making monthly payments to pay off a loan. The loan term can change depending on when the borrower makes payments. 

8. Refinancing 

Refinancing is when you get a new loan to change your current loan agreement. Generally, people refinance their loans to have better interest rates or to get a new loan term. 

9. Maturity 

Maturity is when your loan needs to be paid off in full. Once you have reached your maturity date your loan has been completely paid off. 

10. Principal

Principal is the original amount of the loan. When you make monthly loan payments, your principal balance gets smaller. 

Let's Sum It Up 

Knowing the most frequently used loan terms will help you feel confident as you embark on getting a loan. The more you know, the better. If you feel competent you'll better be able to make an informed decision on which loan makes the most sense for you. 

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