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Loan Terminology 101

written By
Kimber Severance
Reviewed by
Tracy Rawle
August 16, 2024

There is a lot of loan terminology to learn when you are just getting started with a new loan and each loan brings new words with new definitions. Educate yourself and feel confident when discussing loans.

Welcome to the loans terminology 101 section of the Cash Academy Blog. Here we'll go over key loan terminology, what it all means, and how it can apply to you. 

Loan terms can be confusing and overwhelming with unique terminology, abbreviations, acronyms, and even trending terms within the industry. But understanding loan terminology will help you better understand your loan and how it works. 

That's why we created the loan terminology 101 section of the Cash Academy Blog, so we can go over key loan terminology in simple and easy-to-understand ways. 

We'll help you better comprehend these terms so you can make informed financial decisions as an individual, as a household, and even as a small business. 

Let's get started and expand your loan vocabulary today!

A-F

Adverse Action Notice 

An adverse action notice is a written notification sent to a borrower by a lender explaining why a loan application was changed or denied

Amortization

Loan amortization is the process of spreading out payments over time to reduce upfront costs.

Annual Percentage Rate (APR)

Annual Percentage Rate (APR) is the percent a loan borrower pays in interest and fees over the course of a year.

Annuity 

An annuity is a financial product that can provide a stream of income for a period of time in exchange for a series of payments or one lump sum payment. 

Applicant

A loan applicant is the potential borrower who fills out and submits the loan application.

Automated Clearing House (ACH)

The Automated Clearing House (ACH) is a program designed for processing online financial transactions.

Borrower

A loan borrower is the loan applicant who got their loan application approved and received loan funds.

Buy Now Pay Later (BNPL)

Buy Now Pay Later (BNPL) is a short-term loan that allows borrowers to make purchases now and make payments on that purchase over time.

Cash Advance 

A cash advance is a fast-funding loan option that's paid off with one quick payment on the borrower's next payday.

Closing Disclosure

A closing disclosure is a five-page document that outlines all the final terms and details of a home loan.

Collateral Loan 

A collateral loan is a type of secure loan that uses a form of collateral, like a car title, to back up the loan amount. 

Cosigner

A cosigner is a secondary signer on a loan application who is not the borrower, but whose signature acts as a form of collateral.

Credit

Credit can refer to the amount of money a borrower can access or the borrower's financial standing.

Credit Score 

A credit score is a number range used to show someone’s creditworthiness. Scores generally range between 0 and 850 with 850 being the best score possible. 

Debt Consolidation

Debt consolidation is a type of debt refinancing that brings multiple debts into one single loan.

Default 

Loan default is when a borrower fails to meet an obligation in the loan contract, like making on-time payments.

Deferred 

Deferred is an adjective used to describe loans when loan payments are officially delayed or rescheduled.

Direct Lender 

A direct lender is a type of lender that manages the loans they provide directly rather than through a third party.

Down Payment 

A down payment is an upfront payment that goes toward a large purchase and helps secure the rest of the funding for the large purchase.

Fixed Rate 

A fixed rate is a type of interest rate that remains the same during the life of the loan.

G-L

Indirect Lender

An indirect lender is a type of lender that acts as a third party to connect customers with direct lenders.

Installment Loan 

An installment loan is a type of loan that breaks payments into smaller chunks.

Interest Rate

An interest rate is the percentage amount a lender charges a borrower for a loan.

Licensed Lender 

A licensed lender is a lender that has a license to operate from the federal and state government.

Lien 

A lien is a legal claim on a property that acts as collateral to secure a loan.

Loan Approval

A loan approval is when a loan applicant's application is approved.

Loan Commitment 

A loan commitment is when a lender agrees to lend a borrower a specific amount of money with specific terms and conditions. 

Loan Denial

A loan denial is when a loan applicant's application is denied or not approved.

Loan Officer

A loan officer is a financial representative at a financial institution who helps loan customers with their loan applications or agreements.

Loan Principal

The loan principal is the amount of money a loan customer borrows before any interest or fees are applied.

Loan Underwriting

Loan underwriting is the decision-making process a loan application goes through before getting approved or denied.

Loan

A loan is a financial agreement between a lender and a borrower with a specific amount of money and set terms and conditions for repayment.

M-R

Origination Fee

An origination fee is an initial fee from a lender to process, underwrite, and manage a loan.

Payday Loan

A payday loan is a fast-funding option that's due on the borrower's next payday.

Personal Loan

A personal loan is a flexible funding option that's paid off with a few installment payments.

Pre-Approval 

Pre-approval is when a lender reviews a loan applicant's creditworthiness and financial situation and determines the applicant could be approved for a set amount.

Prequalified

Prequalified is an adjective used to describe a potential loan applicant who the lender has determined to be qualified to apply and get approved for a set loan amount.

Primary Residence 

A primary residence is where someone lives for the majority of the year.

Prime

Prime is an adjective used to describe a type of interest rate or loan offered to applicants with a credit score in the highest range.

Promissory Note 

A promissory note is a written legal promise to pay a certain sum at a certain time.

Refinancing 

Refinancing is when an existing loan contract is adjusted, often with a longer repayment period and lower payment amounts.

Revolving Credit

Revolving credit is a type of credit that can be borrowed repeatedly up to a certain limit. 

S-Z

Short-Term Loan

A short-term loan is a fast-funding option that's due on the borrower's next payday.

Subprime

Subprime is an adjective used to describe a type of interest rate or loan offered to applicants with a credit score in a lower range.

Subprime Loan

A subprime loan is a type of loan offered to borrowers with lower credit scores or a higher risk of loan default.

Title 

A title is a legal document that outlines who owns a property or asset, like a car title.

Title Loan 

A title loan is a type of loan that uses a borrower's car title as collateral to secure the loan.

Underwriter

An underwriter is a person who performs the loan underwriting process and processes a loan application for rejection or approval.

Variable Rate

A variable interest rate is a type of interest rate that becomes higher or lower depending on a benchmark interest rate or market index.

Keep Learning

What is a Collateral Loan?
8 Mortgage Loan Types Explained
What is Loan Amortization?

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