A Glossary of Payday Loan Terms and Definitions – Borrowers & Lenders
Payday loans, borrowers and lenders, rollovers, extensions, APRs – the list goes on and on. These are the terms you hear in the world of payday loans – but do you know what they mean? You might, but many don’t. So that’s why we’ve compiled this glossary of payday loan terms and definitions – to educate you and put you on the same level of understanding as the payday lenders. When they speak – you’ll hear and you’ll understand. So pay attention and we’ll clear up any misunderstandings or misconceptions.
To amortize is to repay a loan, in regular installments, over the agreed-upon term of the loan.
- APR (annual percentage rate)
The APR is the annual interest rate charged to the borrower for the convenience of financing the loan.
Your assets are made up of anything you own that has a cash value, including property, goods, savings and investments.
- Bad credit
When you have bad credit, you have a poor credit rating, and you can be turned down when you apply for credit. This is caused by making late payments, skipping payments altogether, exceeding your credit card limits or declaring bankruptcy.
The balance is the remaining amount owed.
When you declare bankruptcy, you’re legally stating that you’re unable to repay your debts. The debts are erased by the courts, but you won’t be able to get new credit for 7-10 years. Bankruptcies are recorded on your credit report.
- Beacon Score
Your beacon score is recorded on your credit report, telling creditors if you’re creditworthy. It’s determined by the amount of activity on your report, including positive factors like timely payment of loans, and negative factors like late payments. Every time you apply for credit, it’s counted as a negative on your beacon score.
- Cash advance loan
A cash advance loan, or a payday loan, consists of money borrowed until the borrower’s next payday. The maximum amount of a payday loan advance is usually $500, and comes with a very high APR.
Collateral consists of assets that you put up as security, which can be used to recoup part or all of a loan that’s in default.
When you’re extended credit, you promise to pay, in the future, in order to borrow today which, in effect, defers repayment of your debt.
Creditworthiness is a creditor’s measure of your past and future ability, and your willingness, to repay your debts. This is often determined in part by your consumer credit report.
- Credit History
Your credit history is a record of the debts you’ve borrowed and repaid in the past.
Default occurs when you fail to meet the terms of your credit agreement.
The interest charged on a loan is added to the principal to equal the total amount to be repaid by the borrower. It’s sometimes referred to as the cost of borrowing.
Your liabilities consist of everything you owe to others.
- Monthly payment
Your monthly payment is made up of the principal plus the interest on a loan, paid monthly until the loan is paid in full.
- Net Worth
Your net worth is calculated by subtracting your liabilities from your assets.
- Overdraft Checking Account
An overdraft checking account gives you a line of credit that lets you write checks for more than the actual balance in your account, with a charge for the overdraft.
The principal of a loan is the actual amount borrowed.
When you rollover your payday loan, you extend or renew the loan by paying the fees for the next two weeks, or until your next payday. Every time you do this, you double your costs for the loan.
- Security interest
Security interest is the creditor’s right to take all or part of the property you offered as security for the loan.
Those are the terms and definitions that are relevant to payday loans. Many of them relate to some form of credit. That’s because there’s a definite connection between payday loans and credit in that payday loans are a form of giving credit. Many people apply for payday loans because they can’t get credit anywhere else. And that’s the major purpose of payday loans.
So now, if you need a payday loan, you can apply with the confidence that you know what you’re getting into. You understand the terms. You understand the language. Get yourself out of that emergency situation – but make sure you pay it off next payday. That’s the way payday loans are designed. And that’s the way they can help relieve your stress in times of emergencies. And that’s how you can achieve what we all want throughout our whole lives – peace of mind.
About The Author
Gareth Marples is a successful freelance writer providing valuable tips and advice for consumers needing quick cash til payday loans, students applying for direct college loans, and student credit cards. His numerous articles offer moneysaving tips and valuable insight on typically confusing topics.
This "Glossary of Payday Loan Terms & Definitions" reprinted with permission.
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