Some Common Loans Jargon Explained
Below is a MRR and PLR article in category Finance -> subcategory Loans.
Understanding Common Loan Jargon
Navigating the world of personal finance often feels like learning a new language, especially when dealing with loans. To help you make informed decisions, we break down some of the most common terms you'll encounter in loan advertisements, application forms, and credit agreements.
Key Terms Explained
APR (Annual Percentage Rate)
The APR represents the total cost of a loan annually, including the interest rate and any additional fees. For example, two loans with the same interest rate could have different APRs if one includes a setup fee.Subprime
This term refers to loan applications from individuals with less-than-perfect credit scores, also known as adverse credit. Subprime borrowers may face challenges in getting approved and are likely to incur higher interest rates.Advance
In finance, an advance simply refers to the amount you borrow.Term
The term of a loan is the period over which you agree to repay it. A longer term might lower your monthly payments but typically results in more interest paid over the life of the loan.Collateral or Security
For secured loans like mortgages, your home serves as collateral. This means if you default, the lender can seize and sell the property to recover their money. Secured loans often come with the advantage of lower interest rates and larger borrowing amounts, even for those with lower credit scores.LTV (Loan to Value)
LTV is the ratio of the loan amount to the value of the collateral, expressed as a percentage. For instance, an $80,000 loan on a $100,000 property has an LTV of 80%. A lower LTV is preferred by lenders as it reduces their risk in case of a default.HLC (Higher Lending Charge)
This fee may apply to loans with high LTV ratios, usually when borrowing over 90% of the collateral's value. Lenders must clearly disclose any HLCs before you sign a loan agreement.By understanding these terms, you can better navigate loan options and make choices that align with your financial goals.
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