Tips and Tools For Financial Success - Newton Free Library

Borrowing Terms and Defintions
Annual Percentage Rate – (APR) the yearly amount or measure of interest that is charged to
borrow money
The annual percentage rate on his car loan is 6%.
Borrower - a person who uses money or an item with the intention of returning it
The borrower repaid the loan early and was able to eliminate two payments.
Capacity - the ability to perform an action or task
The bank wanted to know if she still had the capacity to make her loan payments since she had been laid off.
Car Title – a legal document that indicates ownership on an automobile
The bank held the car title until the loan was paid in full.
Collateral - property or other assets provided to secure a loan
He used his business as collateral for the loan.
Consumer – one who purchases goods or services
A smart consumer compares the price of products before making a purchase.
Equity – the value of a property or asset minus the existing debt
After 20 years of ownership, the couple had 60% equity in their house.
Finance charge - the amount of money it will cost a borrower for interest and fees on a loan
She compared the finance charge on two different loans to decide which one would cost less.
Financing – the money obtained to fund the purchase of an asset such as a car or home
Her parents applied for financing from the bank for an addition to their home.
Fixed Rate – an amount of interest that remains the same during the entire loan period
They opted for a fixed rate mortgage so they would know how much to budget each month for housing.
Installment - payment on a loan that occurs on a regular basis
Online banking made it easy to pay his monthly loan installment instantly with a click of the mouse.
Lender - a person or business that provides money for a loan with the expectation of getting it back
The lender offered a good annual percentage rate on the loan.
Loan – money provided to a borrower that normally requires a promise of repayment of both the amount
borrowed plus interest
She had to take out a student loan to pay her college tuition.
Variable Rate – a rate of interest that may go up or down during a loan period
He took a risk by accepting a variable rate loan hoping that the payment would decrease and he would pay less.
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