Getting a loan of any kind, be it large or small, can be a daunting process for even the more knowledgeable of borrowers. And if you’ve never worked with a lender, understanding the procedures can seem difficult.
But borrowing doesn’t have to be so difficult. Knowledge, after all, is power, and even knowing the most basic information will help you immensely.
Below, you will find a list of general loan terms and their definitions. These are the terms likely to come up in payday loan documents, as well as conversations with lenders, so knowing their meanings will prove to be invaluable. Having this information may seem like only a bit of a head start, but you’ll find that it will help you navigate the borrowing process with relative ease.
- Debt: The amount owed by the borrower. Usually in the form of a note, bond, or mortgage that states the amount to be repaid as well as any interest provisions.
- Lien: If the borrower does not pay what is due to the lender according to the terms of the loan, then a lien may be issued against the borrower’s property or other assets.
- Bad debt: Debt that is not collectible.
- Collateral: Consists of the assets of the borrower that are pledged when setting up a loan. If the borrower does not repay the loan, the lender has the right to seize these assets as substitute payment.
- Default: Failure to meet the requirements of a loan, by either being financially unable to pay, unwilling to pay, or by not comply with the terms of the agreement.
- Delinquent: When applied to finances, this refers to the borrower’s failure to repay what is owed within the set amount of time.
- Due Diligence: This refers to the borrower’s responsibility to disclose all pertinent information to their creditor before entering into a loan agreement, including financial statements, value of assets that will serve as collateral, tax status, and source of income.
- Intermediaries: These are the middle men in lending, including credit unions, venture capital funds, and small banks. They process large amounts of small loans and investments, which often allows them to be more efficient and develop expertise in a particular field or region.
- Principle: The amount that is received in a loan.
- Promissory Note: The written contract between a borrower and lender that outlines the borrower’s promise to pay back the loan.
- Recourse: When in reference to a loan, this is the lender’s right to demand payment from the borrower. Recourse in loans can be full, limited, or non-existent.
- Term: The length of time until final repayment.
- Write-Off: When a loan becomes seriously delinquent, the lender may choose to consider the unpaid amount as noncollectable, and charge it as an expense or a loss.
