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Annual
Percent (APR):
This represents the annual cost of credit
or the interest rate charged on a loan.
The Federal Truth In Lending Act requires
payday lenders to conspicuously disclose
the APR to prospective borrowers.
Assets
Anything owned by an individual that
has a cash value. This includes property,
goods, savings or investments.
Assumption
The agreement between buyer and
seller where the buyer takes over the
payments on an existing mortgage from
the seller. Assuming a loan can usually
save the buyer money since this is an
existing mortgage debt.
Average Daily Balance
The average daily balance is a method
used to calculate finance charges. It
is calculated by adding the outstanding
balance on each day in the billing period,
and dividing that total by the number
of days in the billing period. The calculation
includes new purchases and payments.
Bad Credit:
This refers to a low FICO score or a
poor credit rating resulting from a
borrower's negative payment history
(i.e. defaults, late payments), outstanding
debts, bankruptcy filings, and/or other
credit-tarnishing circumstances. Lenders
view bad credit borrowers as high risk
in terms of future payment obligations.
Balance
The total amount of money owed.
It includes any unpaid balance from
the previous month, new purchases, cash
advances, and any charges such as an
annual fee, late fee or interest. The
balance should not be confused with
the monthly payment (the minimum payment
allowed each month), which is generally
2% - 5% for revolving credit cards.
Balance Transfer
Moving a balance (debt) from one credit
card to another. This is often done
with special checks or forms, or may
be offered as an option on some credit
card applications. The usual reason
is to shift an ongoing debt to an account
with a lower interest rate.
Bankruptcy:
A federal court proceeding whereby a
consumer's debts are wiped out and his
or her assets are sold.
Beacon Score
This is your credit score that creditors
look at when determining if you are
credit worthy. Your Beacon Score is
determined by negative entries such
as late payments which would decrease
your score or a positive, timely payment
history on your accounts which would
increase your score.
Billing Cycle
The number of days between statement
dates. This is generally about 25 days.
Buydown
A lump sum payment made to the creditor
by the borrower or by a third party
to reduce the amount of some or all
of the consumer's periodic payments
to repay the indebtedness.
Cash Advance
Also known as a payday loan, this short-term
loan which is generally in the range
of $100-$1000 serves as an emergency
source of funding for individuals who
need to bridge the financial gap until
the next payday. Cash advance loan providers
typically require applicants to be at
least 18 years of age and steadily employed
and to have an active bank account.
Chapter 7
In a Chapter 7 agreement, the court
resolves most debts by selling assets
and property so that the filer is given
a fresh financial start. The court takes
all assets including cars, homes, furnishings,
jewelry or anything else of value. The
assets are sold to pay off the debt.
There are some debts that a person may
wish to repay on their own instead of
having the court resolve it. This is
called reaffirmation. Reaffirmation
is a special payment plan with the court.
For example, if a car loan is reaffirmed,
the person keeps the car and makes payments
under new terms. Chapter 7 bankruptcy
will not eliminate debts due to taxes,
child support, alimony, student loans,
court fines or personal injury caused
by driving drunk or under the influence
of drugs. A Chapter 7 filing will remain
on a credit report for 10 years.
Chapter 13
In a Chapter 13 agreement, the court
creates a debt repayment plan that allows
the filer to keep their property. In
order to file Chapter 13, a person must
have a source of income and promise
to pay part of their income to creditors.
The court allows the filer to keep any
assets that have debts against them
if they pay them off under terms determined
by the court. A Chapter 13 filing will
remain on a credit report for 10 years.
With Chapter 13, there is a better chance
of obtaining future loans and credit.
Closed End Credit
Generally, any loan or credit sale agreement
in which the amounts advanced, plus
any finance charges, are expected to
be repaid in full over a definite time.
Most real estate and automobile loans
are closed- end agreements.
Collateral:
Also known as security, collateral refers
to assets such as a borrower's car or
home that are pledged to a creditor
as assurance of debt repayment. In the
event of default by the borrower, the
lender may sell off assets to satisfy
the debt.
CFSA:
Community Financial
Services Association of America Through
its Best Practices, this national organization
protects the public by ensuring that
the payday loan industry operates responsibly
and that consumers can avail themselves
of viable and safe, short-term loans.
Conditionalities
Extra requirements other than repayment
(such as ?structural adjustment' policies)
demanded by the lender before new loans
are granted.
Cosigner
Another person who signs for a loan
and assumes equal liability for it.
Credit Card
Any card, plate, or coupon book that
may be used repeatedly to borrow money
or buy goods and services on credit.
Credit Check:
To determine a prospective borrower's
creditworthiness, payday lenders may
conduct credit checks by requesting
detailed reports from one or several
of the leading credit bureaus- namely
Experian, TransUnion, and/or Equifax.
A credit check involves an examination
of the borrower's bank statements and
credit report, which contains the latter's
payment history and indebtedness.
Credit History:
This constitutes a report of a borrower's
employment record, loan repayment behavior,
available credit lines, present and
past addresses, and risk factors such
as bankruptcy or late payments. National
credit bureaus such as Experian, Equifax,
and TransUnion record borrowers' credit
histories in the credit reports they
issue.
Credit Report:
This is a summary of a borrower's credit
history (i.e. outstanding debts, available
credit), credit inquiries, and public
records such as court judgments or bankruptcy
filings. The credit report, which also
provides identifying information about
the borrower, such as name, Social Security
number, phone number, and address, enables
lenders to assess creditworthiness and
set an applicable interest rate.
Credit Reporting
Agency:
Also known as credit bureaus or (CRA),
CRAs gather information about borrowers,
such as credit history, tabulate their
credit rating, and create credit reports
for lenders. The three major credit
reporting agencies in the U.S. are Equifax,
TransUnion, and Experian.
Credit Score:
Also referred to as FICO or a credit
rating, this three-digit number which
typically ranges from 300 to 850, is
a measure of a borrower's creditworthiness
based on payment history, balances,
and outstanding debts. A credit score
may be generally classified as excellent,
good, fair, or poor.
Credit Scoring System:
A statistical system used to determine
whether or not to grant credit by assigning
numerical scores to various characteristics
related to creditworthiness.
Creditworthiness:
A determinative factor for lenders on
a borrower's willingness and likelihood
to repay a loan or credit extended to
you.
Debt Management
Company:
This credit counseling agency offers
an extensive line of services, such
as budget planning, consumer education
courses, and debt management plans to
assist delinquent borrowers in paying
off their bills. Debt management companies
negotiate with creditors to lower interest
rates and monthly payments, reduce calls
requesting payment, and cancel late
fees.
Debt Service:
Total payments due on loans (repayments
plus interest).
Default Payment:
This occurs when a borrower fails to
make timely payments on his or her loan.
Defaults, which are listed in credit
bureaus' reports, may negatively impact
a consumer's creditworthiness.
Deferred Deposit:
In this type of transaction, a lender
issues a cash advance to a borrower,
receives a postdated check from the
latter, and holds it for deposit. The
borrower usually has two weeks to repay
the loan.
Direct Deposit:
The term used to describe the process
of wiring or electronically depositing
funds into a borrower's account.
Discharge:
A legal terms meaning a court has erased
your debt(s) not to be confused with
a "charge off" or "write
off" which is an accounting term
which does not erase debts.
Fees:
A charge that payday lenders impose
on the principal of the funds borrowed.
Finance Charge:
This numerical figure provides the total
cost of credit, including processing
fees, service charges, and interest
fees.
Fixed Rate:
A traditional approach to determining
the finance charge payable on an extension
of credit. A predetermined and certain
rate of interest is applied to the principal.
Graduated Payment:
Repayment terms calling for gradual
increases in the payments on a closed-end
obligation. A graduated payment loan
usually involves negative amortization.
Interest Rate:
A fixed fee that a borrower
pays in order to borrow money. It is
usually expressed as a percentage of
the sum borrowed.
Liability:
Legal responsibility to repay debt.
Lien:
A notice a creditor attaches to your
property that tells the world that you
owe the creditor money. You cannot sell
the property without paying off the
creditor because the lien makes the
"title" (history of ownership)
cloudy and a new owner won't buy under
those conditions.
Maturity Date:
This represents the payment due date
for the principal and finance charges
on a payday loan or other form of credit.
Predatory Lending:
This practice involves the failure to
disclose loan terms and cost and/or
the deceptive persuasion of prospective
borrowers to consent to abusive and
inequitable loan terms, such as unreasonably
high fees.
Principal:
The initial loan amount borrowed, excluding
interest, costs, and fees.
Rollover:
Also known as extensions, rollovers
allow borrowers to renew their cash
advance and extend the deadline for
repayment to the next payday by paying
an additional fee. While some states
permit unlimited extensions, many have
passed legislation limiting the number
of rollovers that lenders may grant.
Truth in Lending
Act (TILA):
This federal legislation aims at furthering
transparency in consumer credit transactions
by requiring clear and conspicuous disclosures
to borrowers about the cost and terms
of loans. Some of the important disclosures
that TILA requires lenders to make are
those relating to 1) finance fees, 2)
annual percentage rate, 3) late payment
or pre-payment penalties, 4) payment
schedule, 5) their identity, 6) sum
of all the payments, and 7) amount financed.
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