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PFL Unit 4

Vocabulary for PFL unit 4

TermDefinition
Credit An agreement that allows a buyer to borrow money to make a purchase now and agrees to repay the lender at some date in the future, generally with added interest.
Credit union A member-owned, not-for-profit financial cooperative; created and operated by its members with profits shared amongst the owners.
Merchant A store that trades goods or services for money; many offer store credit cards to customers.
Peer-to-peer loan A method of borrowing money that avoids traditional financial institutions as borrowers and lenders are matched through online markets; also called social lending.
Payday loan A short-term loan in which an individual borrows a small amount at a very high rate of interest with the agreement that it will be repaid when the borrower receives their next paycheck.
Title loan A loan where an asset, such as a car, is required as collateral.
Cash advance Short-term loans using an ATM machine that you are able to take against your credit card, up to a certain amount; these have high fees and interest rates.
Rent-to-own An agreement in which a store rents items (such as electronics, furniture, or appliances) to a customer for a high price; the customer must make the weekly or monthly payments or give the items back.
Annual percentage rate (APR) The rate of interest charged on borrowed money for an entire year, which includes the effects of fees and other added costs.
Fixed interest rate An interest rate that stays the same over the term of the loan.
Variable interest rate An interest rate that fluctuates over time due to underlying factors related to the status of the economy.
Length of term The lifespan of the loan, usually stated in number of months or years.
Grace period In loans: allows payment to be made for a period of time after the due date without penalty. In credit cards: the period between the end of a billing cycle and the due date when no interest is charged as long as you pay your balance by the due date.
Late payment A payment toward a debt that is after the due date and grace period, if any; usually results in a fee.
Prepayment penalty A fee a borrower pays a lender when the borrower repays a loan before its scheduled time of maturity; most commonly found in mortgage contracts.
Installment loan A loan, such as a mortgage, that is repaid over time with a set number of scheduled payments; examples are home mortgages, student loans, and car loans.
Revolving credit A line of credit where unpaid balances are moved forward to the next month’s bill and accrue interest.
Secured loan A type of loan that requires a borrower to use an asset as collateral. If the borrower defaults on his or her payments, the lender can take possession of the asset or cash deposit as an alternate form of payment.
Unsecured loan A type of loan not backed by an asset, but by the borrower’s creditworthiness; for example, credit cards.
Credit card A card issued by a financial company or store to facilitate borrowing, usually at the time goods are purchased; the money must be paid back in full each month or fees and interest may be charged.
Debit card Issued by a bank; it is a payment card that deducts money directly from a consumer’s checking account to pay for a purchase.
Bankruptcy A legal proceeding involving a person or business that is unable to repay their debts.
Credit score A number that predicts how likely you are to pay back a loan on time.
Credit report A record of your payment history of financial obligations; includes identification information, credit account information, and public records.
Public records Interactions with the government that are recorded and non-confidential.
Hard credit inquiry Requests for your credit report by lenders when you apply for credit; result in a negative impact on your credit score.
Soft credit inquiry Reviews of your credit report; do not result in a negative impact on your credit score.
Credit bureau An organization that collects and reports credit information about consumers; for example, Experian.
Mortgage A legal agreement in which a person borrows money to buy property (such as a house) and pays back the money over a period of years.
Down payment on a home An initial amount paid at the time of purchase of a home; typically only represents a percentage of the full purchase price of the home, while the rest is paid using a loan.
Equity The difference between the value of an asset and the amount of liability.
Escrow account An account set up by a mortgage lender to pay the borrower’s taxes and homeowner’s insurance.
Private mortgage insurance (PMI) Insurance bought by the borrower, used to reimburse the lender if a borrower can’t pay back a home loan; usually required if the borrower’s down payment is less than 20% of the purchase price of the home.
Mortgage term A fixed period of time over which a mortgage is paid, usually 15 or 30 years.
Adjustable rate mortgage (ARM) A home loan that has a low interest rate in the beginning, but then changes annually as the economy changes.
Created by: joann.roe