Glossary of Personal Finance Terms

A list of commonly used personal finance terms and their definitions.

A through M
N through Z

401(k) – A plan offered by corporations to its employees to set aside tax deferred money for retirement.

403(b) – A plan offered by non–profits and universities to its employees to set aside tax deferred money for retirement.

457 Plans – A plan slightly different from 401(k) in that it is offered to state and governmental employees, but there are never employer matches made.

A through M

A

Adjustable Rate – A loan in which the interest rate can change during the term of the loan. (opposite of fixed rate and also called variable rate.)

Annual Percentage Rate – The yearly cost of the amount financed, including interest and any fees, expressed as a percentage rate (also called APR.)

Annuities – An insurance industry investment product.  These contracts between an individual and an insurance contract are set–up so that you deposit a sum of money with the insurance company and they in turn make monthly payments to you.

Application – The process of a borrower asking for the extension of credit from a creditor.

APR – The yearly cost of a credit, including interest, mortgage insurance, and the origination fee (points), expressed as a percentage (also called Annual Percentage Rate.)

Assets – Any item of economic value owned by an individual.

Auto Insurance – An insurance policy to insure the value of your automobile.  Many states require a minimum insurance coverage to register your vehicle.

Ad Hoc – For the specific purpose, case, or situation at hand and for no other

B

Bank – publicly traded corporation, banks are chartered by the state or federal government and offer checking/savings accounts as well as make loans.

Bankruptcy – (1)The condition of being financially insolvent  (2)The administration of an insolvent debtor’s property by the court for the benefit of the debtor’s creditors

Chapter 7 – A liquidation proceeding, available to individuals, married couples, partnerships and corporations.

Chapter 13 – A repayment plan for individuals with debts falling below statutory levels which provides for repayment of some or all of the debts out of future income over 3 to 5 years.

Bonds – A certificate of debt issued by either a corporation or a government.

Borrower – A individual who signs a promissory note and assumes liability to repay under the terms of that note. (also called a debtor)

Buy-Here, Pay-Here – auto dealer financing for high risk applicants

C

Certificate of Deposit (CD) – A deposit account that pays higher interest rate than a savings account.

Charged Off – When a loan becomes uncollectible and is written off, 120 days delinquent for closed–end and 180 days delinquent for open–end loans.

Collateral – Assets pledged by a borrower to secure a loan or other credit, and subject to seizure in the event of default. (also called security.)

Commercial Credit – A bank loan to a business.

Consumer Credit – A loan from a bank, credit union or finance company to a person.

Cosigner – An individual other than the borrower who signs a promissory note and thereby assumes equal liability for it.

Credit – A contractual agreement in which a borrower receives something of value now and agrees to repay the lender at some later date.

Credit Bureau – Agency which collects and sells information about the creditworthiness of individuals. (also called credit reporting agency)

Credit Counseling Agency – An agency that offers education, counseling and budget analysis to consumers

Credit Repair Organizations Act – A federal law which regulates credit repair businesses.

Credit Report – A report which will contains information about a person’s credit history.

Credit Reporting Agency – Agency which collects and sells information about the creditworthiness of individuals. (also called credit bureau)

Credit Score – A measure of credit risk calculated from a credit report using a standardized formula.

Credit Scoring – A statistical technique used to determine whether to extend credit to a borrower.

Credit Union – Non–profit financial institutions that offer their members check/savings accounts as well as loans.

Creditor – A person or organization which extends credit to others. (also called lender)

D

Debt – A liability or obligation in the form of a loan, owed by one person to another person and required to be paid by a specified date.

Debt Consolidation – A loan, usually secured with the equity in a home, used to pay off other, higher interest debts resulting in one monthly payment.

Debt Management Program (DMP) – A program where an agency works with a debtor and the debtor’s creditors to come up with a repayment plan.  The agency receives payment from the debtor and then distributes the money to the creditors.  Creditors will occasionally make concessions, such as a reduced interest rate, waiving of fees or re–aging accounts.

Debt Negotiation – An agency negotiates with creditors on a debtor’s behalf to reduce the amount of money owed.  The agency usually retains a monthly fee, percentage of the money saved or both.  The money saved in such a program can be considered taxable income by the IRS. (also called Debt Settlement)

Debt Settlement – An agency negotiates with creditors on a debtor’s behalf to reduce the amount of money owed.  The agency usually retains a monthly fee, percentage of the money saved or both.  The money saved in such a program can be considered taxable income by the IRS. (also called Debt Negotiation)

Debtor – An individual who signs a promissory note and assumes liability to repay under the terms of that note. (also called a borrower)

Delinquent – Failure to make a contractual payment on time.

Disability Insurance – An insurance that will supplement your income should you become unable to work.

E

Equal Credit Opportunity Act – A federal law prohibiting lenders from discriminating on the basis of the borrower’s race, color, national origin, religion, age, sex, marital status, or public assistance program participation.

F

Fair and Accurate Credit Transactions Act – A federal law which in part will reduce identity theft and assist victims in recovering from fraud.

Fair Credit Reporting Act – A federal law designed to promote accuracy and ensure the privacy of the information used in a credit report.

Federal Trade Commission – Also known as the FTC, this government agencies has oversight for the FCRA, ECOA, FACT Act as well as other credit related regulations.

FICO – Fair Isaac Corporation; the inventor of credit scoring models.

Finance Company – A company which makes loans to individuals.

Fixed Rate – A loan in which the interest rate does not change during the entire term of the loan. (opposite of adjustable rate.)

G

Government Bond –  A bond issued by the US Treasury.

H

Health Insurance – An insurance policy to cover against health claims.  There are various types such as HMO, PPO & HSA.

Health Savings Accounts (HSA) – A savings account with tax benefits that can be used for paying medical expenses.

Homeowners Insurance – An insurance to cover the value of real estate.  Most mortgage companies require that you insure the value of the home to cover against loss while there is a mortgage in place.

I

Installment Loans – A loan that is repaid with a fixed number of periodic equal–sized payments.

Interest Rate – The fee charged by a lender to borrower money, expressed as an annual percentage of the principal.

Individual Retirement Accounts (IRA) – An account that allows you to personally save for retirement.

J

Junk Bond – A bond that carries a higher than average risk of default and has been given a poor rating by a bond rating company.

K

Keogh – Retirement accounts for self-employed individuals.

L

Lender – A person or organization which extends credit to others. (also called creditor)

Liabilities – The monetary obligations that you owe to others.

Life Insurance – An insurance policy to cover against loss of life.  There are various types of polices such as term and permanent insurance.

M

Money Market Account – A type of savings account that pays higher interest rates but requires a minimum balance and restricts the number of withdrawals.

Mortgage – security agreement where house is pledged for a loan.

Mutual Funds – A fund where people pool together there monies to invest together.  Typically professionally managed and management fees are charged.

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N through Z

N

NASDAQ – Largest OTC exchange.

Net Worth – The resulting value between your assets and liabilities.

NYSE – New York Stock Exchange is the largest equity exchange in the world.

O

Over the Counter (OTC) – The NASDAQ stock exchange is an example of an OTC exchange.  Most stocks in the US are traded on the OTC.

P

Pawnshop – Lends money and holds some of the borrower’s personal goods as collateral

Payday Loan – Short term loans with high interest rates.

Pension Plan – A retirement plan set by a employer for its employees.

Personal Liability Umbrella Insurance – An insurance policy to cover in excess of homeowner or auto insurance policies.  Typically used to raise coverage to higher limits.

Promissory Note – A document signed by a borrower promising to repay a loan under agreed–upon terms.

Pro Bono – Done without compensation for the public good.

Q

Qualified Retirement Plan – Employer sponsored, tax–deferred retirement plans which employees can contribute to.

R

Re-aging  –  Bringing your account current. Bank guidelines vary on their re–aging process (i.e., some re–age once in a twelve month period; some once in a five–year period).

Real Property – Land, houses, condos. (also called Real Estate.)

Renters Insurance– An insurance policy renters can take out to cover the value of their personal belongings while renting a home or apartment.

Revolving Credit – An agreement by a bank to lend a specific amount to a borrower, and to allow that amount to be borrowed again once it has been repaid.

Roth IRA – An IRA which you deposit after tax dollars.

S

Savings Account – A deposit account that pays interest and allows for unlimited deposits and withdrawals.

Secured – Backed by a pledge of collateral. (opposite of unsecured.)

Security – Assets pledged by a borrower to secure a loan. (also called collateral.)

Security Agreement – loan document pledging asset for a loan.

Simplified Employee Pension (SEP) – A plan for self–employed individuals (and their employees) yet who have less than 25 employees.

Social Security Tax – A tax withheld from your pay to fund the Social Security Retirement System.  If you are self–employed you contribute the full percentage, if you are employed you contribute half and your employer the other half.

Stocks – Instruments that signify ownership in a corporation.  There can be different classes such as common stock or preferred.

T

Truth in Lending – A federal law requiring lenders to fully disclose in writing the terms and conditions of a mortgage, including the annual percentage rate and other charges. (also called Regulation Z.)

U

U.S. Savings Bonds – Bonds issued by the United States government.

Unsecured – Backed not by collateral but only by the integrity of the borrower.

V

Variable Rate – A loan in which the interest rate can change during the term of the loan. (opposite of fixed rate and also called adjustable rate.)

W

Will – A legal document which states your wishes for deposition of your belonging upon your death.

X

Y

Yield – The rate of return on an investment.

Z

Zero-Coupon Bond – Bonds which pay interest only upon their maturity.

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