Personal Loan Glossary: 48 Terms From A to Z

Every term below has its own anchor link, so you can share or bookmark a single definition. Definitions are two to four sentences and describe how the word is used in small personal loan offers.

• A
• B
• C
• D
• E
• F
• G
• H
• I
• J
• L
• N
• O
• P
• R
• S
• U

A

Acceleration clause

A contract term that lets a lender demand the full remaining balance at once if you break the agreement, usually after several missed payments. Most lenders use it only after other collection steps fail. Read this clause to know how many missed payments trigger it.

Amortization

The way a fixed payment is split between interest and principal over the life of a loan. Early payments on personal loans go mostly to interest; later payments go mostly to principal. An amortization schedule lists that split for every payment.

Amount financed

The credit actually provided to you, after any prepaid fees are subtracted. If you borrow $2,000 and a $100 origination fee is withheld, the amount financed is $1,900. This figure appears in the federal disclosure box on every offer.

Annual percentage rate (APR)

The yearly cost of a loan expressed as a percentage, including interest and required fees such as an origination fee. APR is the best single number for comparing personal loans of the same amount and term. Typical APRs through our network run about 5.99% to 35.99% (estimate).

Autopay discount

A small rate reduction, often a quarter or half a percentage point, for letting the lender draft payments automatically from your bank account. The discount usually disappears if you cancel autopay. It lowers cost slightly but should not decide which offer you pick.

B

Balance transfer

Moving a credit card balance to another card, often at a low promotional rate for a set number of months. Transfers usually carry a fee of 3% to 5% of the amount moved. It is the main alternative to a debt consolidation personal loan.

Bankruptcy

A federal court process that can wipe out or restructure debts when someone cannot repay them. It stays on a credit report for seven to ten years and makes new credit harder and more expensive to get. Some lenders will not consider applicants with a recent filing.

C

Charge-off

An accounting step a lender takes when it decides a debt is unlikely to be repaid, often after about six months of missed payments. You still owe the money, and the account is usually sold or sent to collections. A charge-off seriously damages a credit score.

Collateral

Property you pledge to secure a loan, such as a car title or a savings account. If you stop paying, the lender can take the collateral. Secured loans often carry lower APRs because the lender's risk is smaller.

Collections

The stage after missed payments when a lender or a hired agency works to recover the debt. Collectors must follow federal rules on when and how they contact you. A collections account can remain on a credit report for up to seven years.

Cosigner

A second person who agrees to repay a loan if the main borrower does not. A cosigner with stronger credit can help an applicant qualify or get a lower APR. The cosigner is fully responsible for the debt and sees it on their own credit report.

Credit bureau

A company that collects credit history and sells reports to lenders. The three national bureaus are Equifax, Experian and TransUnion. Not every lender reports to all three, which is why scores can differ between bureaus.

Credit report

A record of your credit accounts, balances, payment history and public records kept by each bureau. You can get free reports from all three bureaus through the official annual credit report website. Check them for errors before applying for personal loans.

Credit score

A three-digit number, usually from 300 to 850, that predicts how likely you are to repay debt. Payment history and the amount you owe carry the most weight. Lenders use it to decide approval and price.

Credit utilization

The share of your available revolving credit that you are using. Owing $3,000 on cards with $10,000 in limits means 30% utilization. Lower utilization generally helps a credit score.

D

Debt consolidation

Combining several debts into one new personal loan with a single payment. A consolidation personal loan can lower total interest when its APR is below the rates on the debts it replaces. It only helps if the old balances are not run up again.

Debt-to-income ratio (DTI)

Your monthly debt payments divided by your gross monthly income. Someone with $1,200 in payments and $4,000 in income has a 30% DTI. Many lenders prefer a DTI below about 40% to 45%.

Default

Failing to repay a loan as agreed, usually defined in the contract as a certain number of missed payments. Default can lead to collections, a charge-off and legal action. Talking to the lender before default often opens hardship options.

Direct payment to creditors

An option on some debt consolidation loans where the lender pays your card or loan balances for you instead of depositing cash. Some lenders give a rate discount for it. It also removes the temptation to spend the funds elsewhere.

E

Early payoff

Repaying a loan before the final scheduled payment. Because interest on most personal loans accrues on the remaining balance, paying early cuts total interest. Check whether extra payments reduce principal or simply prepay the next installment.

F

Finance charge

The total dollar cost of credit over the life of the loan, including interest and certain fees. In the representative example of $2,000 over 12 months at 24.99% APR, the finance charge is about $280.96 (estimate). It appears in the federal disclosure box.

Fixed rate

An interest rate that stays the same for the whole loan. Nearly all personal loans in the $500 to $5,000 range use fixed rates, so the monthly payment never changes. That predictability makes budgeting easier.

G

Grace period

A short window after a due date, often 10 to 15 days, before a late fee is charged. A grace period does not always stop a late payment from being reported once it is 30 days past due. Check your agreement for the exact number of days.

H

Hard inquiry

A credit check made when you formally apply for credit. It can lower a score by a few points and stays on a report for two years, though its effect fades within months. Several inquiries for the same loan type in a short period are often counted as one.

Hardship plan

A temporary change to your payments offered by a lender when you face a job loss, illness or other setback. Options can include a short deferral, a reduced payment or a changed due date. Ask before you miss a payment, not after.

I

Income verification

The step where a lender confirms what you earn, using pay stubs, bank statements, tax forms or a direct bank connection. It protects both sides from a loan the borrower cannot afford. Self-employed applicants usually need bank statements or tax returns.

Installment loan

A loan repaid in equal scheduled payments over a set term, such as 12 monthly payments. Personal loans, auto loans and mortgages are installment loans, and nearly every offer from a hidden meadow lending request is one. When the last payment is made, the account closes.

Interest rate

The percentage a lender charges on the money you borrow, not including fees. It is always equal to or lower than the APR. Compare APRs rather than interest rates when fees differ.

J

Joint loan

A loan taken out by two borrowers who share equal responsibility for repayment. Combining incomes can raise the amount a lender will approve. Both borrowers see the account on their credit reports.

L

Late fee

A charge added when a payment arrives after the due date and any grace period. It may be a flat amount or a percentage of the payment, and states often cap it. Repeated late payments can also hurt a credit score.

Lender

The company that approves a loan, sets its rate and terms, sends the funds and collects payments. A matching service is not a lender, and a hidden meadow lending request never makes the credit decision. Your loan agreement always names the lender.

Loan agreement

The legal contract between you and the lender that sets out the amount, APR, payment schedule, fees and your rights. Read it fully before signing. Ask for any optional add-on to be removed if you did not request it.

Loan matching service

A company that takes one request from a borrower and shares it with several lenders that may make an offer. Legitimate services do not charge borrowers and do not make credit decisions. Compare each lender's offer on its own terms, whether it came through a hidden meadow lending request or another service.

Loan term

The length of time you have to repay a loan, usually stated in months. Personal loans for $500 to $5,000 typically run 3 to 36 months. A longer term lowers the payment but raises total interest.

N

Nonsufficient funds (NSF) fee

A charge when a payment is returned because your bank account did not have enough money. Both your bank and the lender may charge one. Setting a payment date right after your paycheck lands helps avoid it.

O

Origination fee

A one-time fee some lenders charge to process personal loans, often 1% to 10% of the amount. It is usually taken out of the loan proceeds, so you receive less than you borrow. The fee is included in the APR.

P

Prepayment penalty

A fee for paying a loan off early. Most personal loan lenders today do not charge one, but some still do. Look for the prepayment clause before signing.

Prequalification

A preliminary rate check based on a soft credit pull and the details you provide. It shows likely terms without affecting your score. A prequalified rate can still change after full review, and lenders answering a hidden meadow lending request follow the same rule.

Principal

The amount you borrow, separate from interest and fees. Each payment reduces the principal a little, and early payoff reduces it faster. Interest is calculated on the remaining principal.

Promissory note

The signed promise to repay a debt on stated terms. For personal loans it is usually part of the loan agreement. It is the document a lender relies on if it must collect.

R

Rate cap

A legal limit on the interest or APR a lender may charge on personal loans and other credit, set by state law or by federal rules for certain borrowers. Caps vary widely, and some states have none for larger loans. Active-duty service members are protected by a 36% federal cap on most consumer credit.

Refinancing

Replacing an existing personal loan or other debt with a new one, usually to get a lower rate or a different payment. Watch for a new origination fee that can erase the savings. Refinancing restarts the amortization schedule.

Representative example

A sample personal loan showing the APR, payment and total cost so you can judge typical pricing. On this site it is $2,000 over 12 months at 24.99% APR, about $190.08 a month and $2,280.96 in total (estimate). Your actual offer may differ.

Revolving credit

Credit you can borrow, repay and borrow again up to a limit, such as a credit card or line of credit. Payments change with the balance. It differs from an installment loan, which has a fixed schedule and end date.

S

Secured loan

A personal loan or other credit backed by collateral such as a vehicle title or savings account. Securing a loan can lower the APR or help a borrower qualify. The risk is losing the collateral if payments stop.

Soft inquiry

A credit check that does not affect your score, used for prequalification, account reviews and checking your own credit. Only you can see soft inquiries on your report. Most rate checks for personal loans start with one.

U

Underwriting

The review a lender performs to decide whether to approve a loan and at what price. It covers credit, income, existing debt, identity and banking history. Underwriting for small personal loans can take minutes or a few business days.

Unsecured loan

A personal loan with no collateral, approved on the strength of your credit and income. Most personal loans are unsecured. Because the lender takes more risk, APRs tend to be higher than on secured loans.