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Personal Loan Terminology You Should Know

Personal Loan Terminology You Should Know

By Jessica Leshnoff • January 08, 2020

We get it. Loan terminology — financial terms in general — can be confusing. So if you’re feeling overwhelmed, you’re not alone.

To help you feel more confident, we’ve broken some common loan vocabulary down into everyday language. Here’s some important things to know when you’re researching, applying for and hopefully closing on your personal loan.

General loan terminology

Let’s start with some basic loan vocabulary. You’re sure to come across these words and phrases often as you research different lenders and review applications.

  • Installment loan
    A loan you pay back in a set amount of time. Each payment is a monthly installment, hence the name. Common installment loans include personal, car and student loans, as well as mortgages.

  • Term
    The agreed-upon time you have to pay off an installment loan.

  • Interest rate
    A percentage of the money you’ve borrowed. When you receive a loan, lenders charge interest as you pay it back.

  • APR
    This stands for annual percentage rate. An APR includes your interest rate, but also wraps in things like one-time charges and annual fees. (See how APR affects loan payments with a personal loan calculator.)

  • Fixed rate
    An interest rate that doesn’t change. This is common for personal loans.

  • Fixed payments
    Payment amounts that don’t change. Also common for personal loans, they stay the same throughout the life of your loan (provided you make payments on time as scheduled in your loan agreement).

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

Loan application terminology

Now for some vocabulary you’ll likely see as you start applying for loans.

  • Debt consolidation
    Combining a number of debts — credit cards, household bills and so forth — into a single loan.

  • Prequalification
    A quick way for lenders to tell you what kind of loan, if any, you 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.)

  • Net income
    Your take-home pay after taxes and other deductions (such as health insurance), i.e. the amount on your paycheck. (Note that your net income is different from your gross income, which is your wages without any deductions.)

  • Secured/Unsecured loans
    What's the difference between these two types of loans? Secured loans are backed with something of value that you own (also called collateral), such as a car, truck, boat or RV. An unsecured loan is money borrowed without using collateral.

  • Credit score
    A three-digit number that tells lenders how likely you are to repay the loan in a timely fashion. (Learn more about why credit scores are important to lenders.)

  • Cosigner
    Someone who signs for your loan with you. If your credit score isn’t strong enough, a cosigner — someone who is legally obligated to repay your loan if you’re unable to — may be a way to get the money you need.

Additional terminology to know

We’ve covered the big terms, but here’s some lesser-known vocabulary you should be aware of, especially as you get closer to finding the right lender for your personal loan.

  • Origination fee
    A one-time fee to cover loan processing costs.

  • Payoff
    The total amount due to completely pay off your loan.

  • Prepayment fee
    A one-time fee a lender may charge for paying off a personal loan ahead of schedule.

Financial terminology doesn’t have to be scary

And it doesn’t have to be confusing. The more you familiarize yourself with the terminology above, the better prepared you’ll be to find the right lender, then sign on the dotted line. So read them over a couple times. You’ll be an expert in no time.

The information in this article is provided for general education and informational purposes only, without any express or implied warranty of any kind, including warranties of accuracy, completeness or fitness for any particular purpose. It is not intended to be and does not constitute financial, legal or any other advice specific to you the user or anyone else. The companies and individuals (other than OneMain Financial’s sponsored partners) referred to in this message are not sponsors of, do not endorse, and are not otherwise affiliated with OneMain Financial.