Personal Loans Glossary: Important Terms Decoded

Annual Percentage Rate (APR)

Annual percentage rate refers to the interest rate for one as applied on a loan, investment, mortgage loan, credit, etc. In case of a loan, APR could also include fees required to pay to opt the loan.

Application fee

A fee which might be charged by a few lenders to cover costs associated with arranging and processing the application of a loan.

Automatic payment

It is one of the repayment options available for a personal loan. Under these, your monthly EMIs get deducted automatically from your bank account on a predetermined date of each month.

Borrower

A borrower is a person who takes a loan from a lender.

Collateral

A collateral, also known as security, refers to any asset that backs up your loan. The lender has the right to acquire this asset pledged as collateral, in case a borrower fails to repay his loan or continuously defaults his payments.

Credit agency

These are organisations that review the credit information of a borrower and creates credit reports based on it. These reports are often checked by lenders to determine the eligibility of a borrower for a personal loan.

Credit history

Credit history refers to the record of an individual’s borrowing and repayment transaction history.

Credit report

A credit report is a report generated by an official and certified credit rating agency that shows a borrower’s credit history.

Credit score

A credit score is the ability of a borrower to repay a loan which is computed based on the borrower’s borrowing and repaying history.

Default

This refers to a situation when a borrower is unable to meet the legal obligations of a loan.

Fixed interest rates

Fixed interest rates are interest rates that remain unchanged throughout the tenure of a loan.

Floating interest rates

Floating interest rates are interest rates that keep changing over the tenure of a loan with the rest of the market.

Guarantor

A guarantor is an individual who ensures that a borrower repays his loan amount in full. Guarantors are required in situations where a borrower’s credit history is not satisfactory.

Interest rate

The Interest rate is the amount paid by a borrower to avail a loan. It is a percentage of the loan amount which is paid along with the principal each month.

Late payment

Late payment refers to the charges levied by lenders on a borrower on delayed repayment of monthly EMIs.

Lender

A lender is a financial institution or a bank which lends money to a borrower in the form of a loan.

Line of credit

These are unsecured loans, i.e. loans which do not require any collateral or security. These loans are offered at variable interest rates.

Loan agreement

Loan agreement refers to the official document that represents the terms and conditions of a personal loan. It consists of the rights and obligations of a borrower and a lender.

Payday loans

Payday loans are short-term unsecured personal loans that are offered by the lender to the borrower based on his credit profile and income.

Personal loan

Personal loans are unsecured loans that do not require any collateral. A personal loan can be taken for any purpose, like purchasing a new/used car or house, an international trip, a wedding, to pay a utility bill, to pursue higher studies, etc.

Prepayment fees

A prepayment fee is a penalty fee paid by the borrower, in case he/she repays the loan amount before the end of the tenure. Not all lenders charge a prepayment fee.

Principal amount

The principal amount is the original sum of money borrowed by a borrower from a lender. It is exclusive of fees or interest rates paid by a borrower.

Secured personal loan

These are loans which require the borrower to pledge some asset as collateral or security for the loan.

Term

It refers to the time frame given to the borrower to repay the amount borrowed from the lender as a loan.

Top-up loan

Top-up loan is like an additional loan provided on existing loan by housing finance companies, banks, and other institutions.

Unsecured personal loan

An unsecured personal loan is a loan which does not require the borrower to pledge any asset as collateral for the loan.