Loan agencies glossary

Short, plain-English definitions of the terms you'll meet when choosing a loan agency provider in Southern & Central United States.

What is a balloon payment?: A balloon payment is a significantly larger final payment owed at the conclusion of a loan term, typically after a series of smaller regular installments.
What is a co-signer?: A co-signer is a person who assumes equal legal responsibility for repaying a loan if the primary borrower defaults or fails to pay.
What is a cooling-off period?: A cooling-off period is a state-mandated waiting interval between consecutive payday loans designed to break cycles of repeated borrowing and debt accumulation.
What is a credit union membership requirement?: A credit union membership requirement is an eligibility criterion (such as employment at a specific company, residence in a service area, or membership in an organization) that individuals must meet before they can open an account or apply for a loan.
What is a finance charge?: A finance charge is the total cost to borrow money, expressed in dollars, that combines interest and all other fees a lender charges on a loan.
What is a grace period?: A grace period is the set number of days after a loan payment due date during which a borrower may pay without incurring a late fee or being reported as late to credit bureaus.
What is a line of credit?: A line of credit is a flexible lending arrangement that allows a borrower to withdraw, repay, and withdraw again up to a predetermined credit limit, with interest charged only on the amount actually used.
What is a loan rollover?: A rollover is an option to extend a payday or title loan's due date by paying a fee rather than repaying the principal, though state laws restrict how many times this can occur.
What is a loan-to-value ratio (LTV)?: The loan-to-value ratio is the percentage of a property or asset's appraised value that a lender is willing to finance as a loan, with lower ratios indicating less risk to the lender.
What is a Payday Alternative Loan (PAL)?: A Payday Alternative Loan (PAL) is a small-dollar loan offered by federally-regulated credit unions under NCUA guidelines, designed to provide a lower-cost borrowing option compared to typical payday loans.
What is a promissory note?: A promissory note is a written promise by a borrower to repay a specific amount of money to a lender on defined terms, with specified dates, interest rates, and repayment schedules.
What is a secured vs unsecured loan?: A secured loan requires collateral (such as a car or property) to back the loan, while an unsecured loan relies on the borrower's creditworthiness and promises to repay without pledged assets.
What is a soft credit pull vs hard credit pull?: A soft credit pull is a background check that does not affect your credit score and is used for prequalification or eligibility screening, while a hard credit pull is a formal inquiry that temporarily lowers your score and occurs when a lender makes a final credit decision.
What is a title loan lien?: A title loan lien is a legal claim placed by a lender against a vehicle's title that secures the loan and gives the lender the right to repossess the vehicle if the borrower fails to repay.
What is a Truth in Lending Act (TILA) disclosure?: A federal requirement under the Truth in Lending Act that mandates lenders disclose the annual percentage rate (APR), finance charges, payment schedule, and other material loan terms to borrowers in writing before the loan closes.
What is a usury law?: A usury law is a state regulation that sets a maximum interest rate a lender can charge on borrowed money. These caps vary significantly across states and apply differently to various loan types.
What is an installment loan?: An installment loan is a sum of money borrowed and repaid in fixed equal payments over a predetermined period, typically ranging from months to years.
What is an origination fee?: An origination fee is an upfront charge a lender imposes to process, underwrite, and fund a new loan, commonly expressed as a percentage of the loan principal.
What is APR (Annual Percentage Rate)?: APR is the yearly percentage cost of borrowing, expressed as a single rate that includes both interest charges and applicable fees, making it easier to compare different loan offers.
What is debt-to-income ratio?: Debt-to-income ratio is the percentage of gross monthly income used to pay all debt obligations, calculated by dividing total monthly debt payments by gross monthly income.
What is loan default?: Loan default is a failure to make scheduled payments or otherwise comply with loan terms, typically triggering late fees, collection efforts, credit damage, and sometimes repossession or foreclosure.
What is repossession?: Repossession is the act of a lender legally taking back collateral (usually a vehicle) from a borrower who has failed to make payments on a secured loan.
What is the difference between prequalification and preapproval?: Prequalification is an informal estimate of borrowing capacity based on self-reported information, while preapproval is a formal commitment backed by verified income, assets, and credit documentation.
What is underwriting?: Underwriting is the lender's process of assessing a borrower's creditworthiness, income, assets, and collateral to determine loan approval and terms.