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Glossary: Financing & Credit Terms

Annual Percentage Rate (APR) – The cost of credit expressed as a yearly rate.

Appraisal Fee – The charge for estimating the value of property offered as security.

Automated Teller Machines (ATMs) – Electronic terminals located on bank premises or elsewhere, through which customers of financial institutions may make deposits, withdrawals, or other transactions as they would through a bank teller.

Balloon Payment – A large extra payment that may be charged at the end of a loan or lease.

Billing Error – Any mistake in your monthly statement as defined by the Fair Credit Billing Act.

Business Days – Check with your institution to find out what days it counts as business days under the Truth in Lending and Electronic Fund Transfer Acts.

Closed-End Lease – A lease in which you are not responsible for the difference if the actual value of the item at the scheduled end of the lease is less that the residual value, but you may be responsible for excess wear-and-use charges and for other lease requirements.

Collateral – Property, such as stocks, bonds or a car, offered to support a loan and subject to seizure if you default.

Cosigner – Another person who signs your loan and assumes equal responsibility for it.

Credit – The right granted by a creditor to pay in the future to buy or borrow in the present; a sum of money due a person or business.

Credit Bureau – An agency that keeps your credit record; also called a credit-reporting agency.

Credit Card – Any card, plate, or coupon book used periodically or repeatedly to borrow money or buy goods or services on credit.

Credit History – The record of how you've borrowed and repaid debts.

Creditor – A person or business from whom you borrow or to whom you owe money.

Credit Insurance – Health, life, accident, or dispurtion of income insurance designed to pay the outstanding balance of debt.

Credit Scoring System – A statistical system used to rate credit applicants according to various characteristics relevant to creditworthiness.

Creditworthiness – Past, present and future ability to repay debts.

Debit Card (EFT Card) – A plastic card, looks similar to a credit card, that consumers may use at an ATM or to make purchases, withdrawals, or other types of electronic fund transfers.

Default – Failure to repay a loan or otherwise meet the terms of your credit agreement.

Disclosures – Information that must be given to consumers about their financial dealings.

Elderly Applicant – As defined in the Equal Credit Opportunity Act, a person 62 or older.

Electronic Fund Transfer (EFT) Systems – A variety of systems and technologies for transferring funds electronically rather than by check.

Finance Charge – The total dollar amount credit will cost.

Home Equity Line of Credit – A form of open-end credit in which the home serves as collateral.

Joint Account – A credit account held by two or more people so that all can use the account and all assume legal responsibility to repay.

Late Payment – A payment made later than agreed upon in a credit contract and on which additional charges may be imposed.

Lessee – The party to whom the item is leased. In a consumer lease, the lessee is you, the consumer. The lessee is required to make payments and to meet other obligations specified in the lease agreement.

Lessor – The persona or organization who regularly leases, offers to lease, or arranges for the lease of the item

Liability on an Account – Legal responsibility to repay debt.

Open-End Credit – A line of credit that may be used repeatedly, including credit cards, overdraft credit accounts, and home equity lines.

Open-End Lease – A lease agreement in which the amount you owe at the end of the lease term is based on the difference between the residual value of the leased property and its and it's realized value. Your lease agreement may provide for a refund of any excess if the realized value is greateer than the residual value. In an open-end consumer lease, assuming you have met the use and wear standards, the residual value is considered unreasonable if it exceeds the realized value by more that three times the base monthly payment (sometimes call the "three-payment rule").

Overdraft Checking – A line of credit that allows you to write checks or draw funds with an EFT card for more than your actual balance, with an interest charge on the overdraft.

Point-of-Sale (POS) – A method by which consumers can pay for purchases by having their deposit accounts debited electronically without the use of checks.

Points and Origination Fees – Fees paid to the lender for the loan. One point equals 1 percent of the loan amount. Points are usually paid in cash at closing. In some cases, the money needed to pay points can by borrowed, but doing so will increase the loan amount and the total costs. An origination fee covers the lender's work in preparing your mortgage loan.

Realized Value – (1) The price the lessor or assignee receives for the leased item at disposition, (2) the highest offer for the leased item at disposition, or (3) the fair market value of the leased item at termination. The realized value may be either the wholesale or the retail value as specified in the lease agreement.

Rescission – The cancellation of a contract.

Residual Value – The end-of-term value of the item established at the beginning of the lease and used in calculating your base monthly payment. The residual value is deducted from the adjusted capitalized cost to determine the depreciation and any amortized amounts. It is an estimate that may be determined in part by using residual value guidebooks. The residual value may be higher or lower than the realized value at the scheduled end of the lease.

Security – Property pledged to the creditor in case of a default on a loan; see collateral.

Security Interest – The creditor's right to take property or a portion of property offered as security.

Service Charge – A component of some finance charges, such as the fee for triggering an overdraft checking account into use.

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