Financial Glossary Personal Loan Terminology You Should Know

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By: OneMain Financial

Mar 2, 2021

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7 minute read

Summary

Financial terms are confusing. We broke personal loan vocabulary down into everyday language so you can be confident during applications.

In this article:

For most of us, the only financial education we’ve ever received is advice from family and friends. And while their suggestions may be well-intended, it’s no substitute for taking proactive steps to increase your own financial literacy. Because when it comes to making important financial decisions, like applying for a personal loan, it’s important to understand the terminology clearly before signing on the dotted line.

Here’s a list of common financial terms to know that can help improve your financial literacy and make informed decisions as you research and apply for a personal loan.

A

Annual Percentage Rate (APR) – The yearly cost of your loan proceeds, calculated for the term of your loan. It includes interest charged on your loan, as well as any upfront finance charges, such as loan origination fees or application fees.

C

Charge-off – An accounting term generally used to describe a loan that has become seriously delinquent. When a lender charges off a loan, this means the loan is written off as a loss to the company from an accounting standpoint. The borrower is still responsible for paying back the full amount of money that is owed. A charged off loan typically will remain on a borrower’s credit history for seven years and will likely have a negative impact on credit scores during that time.

Collateral – Property that is pledged as security by the borrower for the repayment of a loan. If the loan is not paid in full or it defaults, the lender may take possession and sell the collateral to try to regain their losses. Learn more about how collateral works.

Cosigner – A person, other than the main borrower, who signs a loan application with the primary borrower. The cosigner also adds their income and credit score for consideration, which could increase the odds of a loan being approved.

Credit – The ability to borrow money in order to purchase goods or services now and pay later.

Credit score – A three-digit number that tells lenders how likely you are to repay the loan on time. It is possible to have three different credit scores as there are three major credit bureaus that create their own unique scores based on the information in your credit report. Learn more about why credit scores are so important to lenders.

Creditworthiness – A borrower’s ability to repay debts in the future. A person’s creditworthiness is based on various factors that lenders use to evaluate the likelihood a borrower will repay his or her credit obligations.

D

Daily simple interest – A method of calculating interest on a loan on the current unpaid principal loan balance. Interest is charged daily and payments are applied first to any other charges provided for in your loan agreement, and then toward the interest accrued and then to the principal balance. If you pay early, more of the payment is applied to the principal, and if you pay late, more of the payment is applied to interest. As the balance decreases, more of your monthly payment is applied to principal. The amount of your payment applied to interest appears as a separate line item in your monthly statement.

Debt consolidation – Taking out a new loan to pay off one or more outstanding debts. Examples of debt you can consolidate include credit cards, personal loans and auto loans.

Deferment – The ability to temporarily postpone making a loan payment until a later date due to economic hardship. A loan deferment can allow a borrower to keep their account current and avoid penalties like late fees.

F

Fixed payments – Payment amounts that stay the same throughout the life of a loan, provided the borrower makes scheduled payments on time.

Fixed rate – An interest rate on a loan that does not change over the life of the loan. This is common for personal loans.

I

Installment loan – A set amount of money borrowed that is repaid with interest through fixed monthly payments. The most common types of installment loans include mortgages, auto loans, personal loans and student loans.

Interest rate – The amount a lender charges a borrower for taking out a loan, usually expressed as an annual rate that is charged to your unpaid principal balance.

L

Lien – A lender’s legal claim on a consumer’s property to secure payment of an unpaid debt.

O

Origination fee – A one-time, upfront operational fee a lender charges to cover loan processing costs.

P

Precomputed interest – A method of calculating the interest that will be due over the term, where interest is precalculated at the time you take out your loan to determine the total amount you will pay back. Your loan agreement shows this amount as the “Total of Payments”. Your monthly payments then are applied to other charges provided for in your loan agreement, and then to reduce "Total of Payments" amount.

Prepayment fee – A one-time fee some lenders charge for paying off a loan ahead of schedule.

Prequalification – A quick way for lenders to determine what kind of loan, if any, a borrower may qualify for. (It’s important not to confuse prequalification with preapproval, which is a more formal commitment from a lender and often requires additional documentation.)

Principal – The amount you’ve borrowed from a lender.

R

RefinancingPaying off an old loan with a new loan in order to save money on interest, lower monthly payments or get more favorable loan terms.

S

Secured loans vs. unsecured loans – Secured loans are loans for which repayment is secured by collateral. Unsecured loans don’t require collateral and are often issued based on the creditworthiness of the applicant and may have higher interest rates than secured loans.

Signature loan – A type of unsecured loan that relies on a borrower’s credit history, income and signature as assurance that he or she will repay it. It’s also known as “good faith loan” or “character loan.”

T

Term – The length of time in months or years that the borrower agrees to repay the loan.

V

Variable rate – An interest rate that can change over time in response to changes in the market. With a variable interest rate, a loan payment can get larger or smaller as the prime rate changes.

Make an informed decision

Understanding basic financial terminology can help you choose and apply for the personal loan that works best for your needs. If you have any questions about applying for a personal loan with OneMain, please visit our Frequently Asked Questions.

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This article is for general education and informational purposes, without any express or implied warranty of any kind, including warranties of accuracy, completeness, or fitness for any purpose and is not intended to be and does not constitute financial, legal, tax, or any other advice. Parties (other than sponsored partners of OneMain Financial (OMF)) referenced in the article are not sponsors of, do not endorse, and are not otherwise affiliated with OMF.

Frequently asked questions

Here are a few things that affect your eligibility

  • Financial history Credit history
  • Income and expenses
  • Loan purpose
  • Whether you have filed for bankruptcy
  • State of residence

Before you close your loan, OneMain will need the following documents from you:

  • A copy of a valid, government-issued ID (driver’s license or passport)
  • Your Social Security card
  • Proof of residence (driver’s license with current address, utility bill, or signed lease)
  • Proof of income (pay stubs or tax returns)

We may ask for more info based on your unique situation. Take the next step and start your loan application today

  • From the start of the application to receiving the funds could be as quick as one day.*
  • Completing the online loan application: Takes just minutes to complete and see your offers*
  • Signing your loan documents: After final loan approval, signing your closing documents takes about 30-45 minutes.
  • Receiving your funds: When using your debit card to receive funds, you can get your money as soon as an hour after signing the loan docs.1 Funds can also be paid out by direct deposit (ACH), which are available approximately 1-2 banking days after loan closing. A check can be issued as soon as the same day as the closing.

*Timing may vary based on: when you submit your application, how many documents are needed for approval, and how long it takes for OneMain to receive, review, and verify those documents, and whether your loan is secured by collateral, among other factors.

Are you still wondering "Is a personal loan right for me?" Don't worry – we're here to help. Just call (800) 961-5577 or find a branch near you.

If you're approved for a loan, you may see secured or unsecured next to your offer. A secured loan requires that you provide collateral, like a vehicle. An unsecured loan doesn't require any collateral from you.

Keep in mind that there are eligibility requirements such as the condition and age of your motor vehicle and proof of insurance. Also, if a borrower defaults on a secured loan, the lender has the right to take the collateral.