19 Financial Terms: Many of us feel overwhelmed or nervous when we need to apply for a loan. A big part of this is because you are borrowing an amount you need to pay back (with interest in most cases) – which results in stress until the loan is paid off.
But, besides the stress of paying off debt, several of us get scared when applying for loans partly because we don’t comprehend loan-related financial terms.
Do you belong to this group? If yes, bookmark this post, which will act as your mini loan glossary that you can refer to when needed.
List of 19 Loan-related Financial Terms
1. Lender
The lender is the entity or institute that lends you the loan. It could be a bank, an individual, an online platform, etc.
2. Borrower
The borrower is the individual that receives a loan from a lender. The borrower is responsible for paying back the loan as per the lender’s terms and conditions.
3. Principal Amount
The principal amount is the amount you actually and initially borrowed from the lender. As you start paying off your loan, it is the amount left for you to pay off.
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4. Interest Rate
The interest rate is the charge you pay monthly on your principal amount. It is expressed in terms of percentage.
5. Annual Percentage Rate (APR)
APR provides the complete estimate of the total yearly cost of a loan as it includes the annual charges that lenders charge along with interest.
6. Loan Tenure
Loan tenure is the duration or term of the loan agreed between the borrower and the lender. You repay the principal loan amount and the interest, mainly through EMIs (Equated Monthly Instalments) within this period.
7. Secured Loan
A secured loan is a loan where the borrower uses an asset as collateral or security to get a loan.
8. Collateral
Collateral is the asset used as a pledge by the borrower to minimize the lender’s risk. The lender can take possession and sell the assets in case of non-payment of the loan. It can be an asset like gold, home, car, land, etc.
9. Guarantor
Sometimes, when your loan amount of an unsecured loan is high, or your credit score is low, you may need a guarantor. A guarantor is a person, generally your close friend or family member, liable to repay the loan if you fail to repay the loan yourself.
10. Unsecured Loan
An unsecured loan does not require or involve any collateral. In most cases, you can get unsecured personal loans based on your credit or repayment history.
11. Personal Loan
A personal loan is an unsecured loan that does not require you to provide any collateral. The lender loans you funds based on your creditworthiness or your repayment history in most cases.
12. Online Personal Loan
An online personal loan is a loan that you apply for online without having to visit the physical location of any lender. It doesn’t require much documentation or paperwork, and the process is much simpler than traditional loans. Instant online personal loans are great for when you need funds quickly.
13. Flexi Personal Loan
A Flexi personal loan is a type of personal loan. These are generally small-ticket loans taken for a short duration. They are generally quickly disbursed and require less documentation. The Flexi personal loan is also offered as a line of credit by some banks and NBFCs.
KreditBee is a leading online lending platform that offers Flexi Personal Loans with easy repayment options for its users. Fast disbursal, secured transactions, hassle-free processes, and collateral-free loans are the highlights of KreditBee offerings. Another great point is that new-to-credit users can also leverage the Flexi Personal Loan benefits by meeting some simple eligibility criteria.
14. Line of Credit
A line of credit is a new way of buying, but it is similar to the good old overdraft facility. It’s a pre-approved credit limit provided to you by banks or NBFCs from which you can withdraw funds whenever you need them.
15. Personal Loan for Salaried
A personal loan for salaried individuals is a loan that employees with regular income can avail of from lenders based on their monthly salary amount.
16. Personal Loan for Self-employed
A personal loan for the self-employed is a loan that small business or startup owners can get to help with funding for their businesses.
17. Debt Consolidation Loan
A debt consolidation loan is taken to repay multiple loans charging you a high-interest rate. Your debt consolidation loan must charge you a lower rate than all other loans. This way, your debt gets managed as one, and you save interest money. So it’s a win-win situation.
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18. Credit Score
A credit bureau collects information about your credit behavior in the past as your credit history. Based on that, you get a credit score between 300 and 900. The more timely payments of loans and utilities are reflected in your credit history, the better your credit score gets. A high credit score increases your chances of getting a loan on favorable terms.
19. KYC
KYC stands for “Know Your Customer”. These are the mandatory RBI guidelines. KYC includes verifying the identity of the customers by the banks or other financial institutions by taking identity and address proof documents from them.
19 Financial terms explained in simple terms ease your fear when it comes to applying for loans. Keep it handy and refer to this glossary when in doubt!
