Payday Loan Glossary

Asset - An asset is anything owned by an individual that has a cash value. This includes property, goods, savings and investments.

Assumption - TAn assumption is ane agreement between the 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 a lot of money since this is an existing mortgage debt.

Average Daily Balance - The average daily balance is a method used to calculate the finance charges. It's 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 both new purchases and payments.

Bad Credit - Bad credit is a term used to describe a poor credit rating. Common practices that can damage a credit rating include making late payments, skipping payments, exceeding card limits and/or declaring bankruptcy. And bad credit can result in being denied credit.

Balance - Balance is 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 and/or interest. The balance should not be confused with the monthly payment (which is the minimum payment allowed each month), generally 2% - 5% for revolving credit cards.

Balance Transfer - Balance transfer is moving a balance (debt) from one credit card to another. This is often done with special checks or forms, or often or usually may be offered as an option on some credit card applications. The usual reason is to shift a debt to an account with a lower interest rate.

Bankruptcy - Bankruptcy is a legal declaration for the inability to repay debts. Bankruptcy should be viewed only as a last resort. It'll have a severe impact on one's credit rating and will remain on a credit report for ten years. Bankruptcy is not a solution in all cases. And Federal student loans, Federal tax debt and child support are all exempt from bankruptcy protection. Bankruptcy agreements vary but there are two types of agreements that most people choose either Chapter 7 or Chapter 13.

Chapter 7 - In a Chapter 7 agreement, the court resolves most of the debts by selling assets and property so that the filer is given a fresh financial start. The court takes all the assets including cars, homes, furnishings, jewelry or anything else of value. The assets are sold to pay off the accrued debt. There are some debts though 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 made with the court. For example, if a car loan is reaffirmed, the person keeps the car and makes payments but under new terms. And 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. And a Chapter 7 filing will remain on a credit report for ten years.

Chapter 13 - In a Chapter 13 agreement, the court creates a debt repayment plan that does allow the filer to keep their property. In order to file Chapter 13, a person must have a source of income and promise to pay a 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 the terms determined by the court. A Chapter 13 filing will remain on a credit report for ten years also. With Chapter 13, there is a better chance of obtaining future loans and credit too.

Beacon Score - This is your credit score that creditors look at when determining if you're 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 - Billing cycle is the number of days between statement dates. This is usually about 25 days.

Buydown - A buydown is 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 loan - A cash advance loan is where a borrower gets cash advanced based on his paycheck. These loans generally up are up $500 and must be repaid on the following payday.

Closed-end Credit - Closed-end credit is 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 - Collateral is property that is offered to secure a loan or other credit and that becomes subject to seizure on default. (Also called security.)

Conditionalities - Conditionalisties are extra requirements other than repayment (such as ?structural adjustment' policies) demanded by the lender before new loans are granted.

Cosigner - A cosigner is another person who signs for a loan and assumes equal liability for it.

Credit - Credit is the promise to pay in the future in order to buy or borrow in the present. The right to defer payment of debt.

Creditworthiness - Creditworthiness is a creditor's measure of a consumer's past and future ability and willingness to repay debts.

Credit Card - A credit card is any card, plate, or coupon book that may be used repeatedly to borrow money or buy goods and services on credit.

Credit History - A credit history is a record of how a person has borrowed and repaid debts.

Credit Scoring System - A credit scoring system is a statistical system used to determine whether or not to grant credit by assigning numerical scores to various characteristics related to creditworthiness.

Debt service - A debt service are the total payments due on loans (repayments plus interest).

Default - Default is failure to meet the terms of a credit agreement.

Discharge - Discharge is a legal term 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.

Discount - A discount is the amount deducted from the regular price for those who purchase with cash instead of credit.

Finance Charge - A finance charge is the total dollar amount paid to get credit.

Fixed Rate -  A fixed rate is 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 -  A graduated payment is repayment terms calling for gradual increases in the payments on a closed-end obligation. And a graduated payment loan usually involves negative amortization.

Liability - Liability is the legal responsibility to repay debt.

Lien - A lien is 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 the conditions.

Negative Amortization - Negative amortization is a repayment schedule calling for periodic payments that are insufficient to fully amortize the loan. And earned but unpaid interest is added to the principal, increasing the debt. Eventually, payments must be rescheduled to fully pay off the debt. 

Open-end Credit - Open-end credit is a line of credit that may be used repeatedly up to a certain limit, also called a charge account or revolving credit.

Open-end Lease - Open-end lease is a lease that may involve a balloon payment based on the value of the property when it is returned. (Also called a finance lease.)

Overdraft Checking Account - An overdraft checking account is a checking account associated with a line of credit that allows a person to write checks for more than the actual balance in the account, with a finance charge on the overdraft.

Payday Loan - A payday loan is a loan where a borrower gets cash advanced based on his paycheck. These loans generally are given up to $500 and must be repaid on the next payday.

Points - Points are finance charges paid by the borrower at the beginning of a loan in addition to monthly interest and each point equals one percent of the loan amount.

Principal - Principal is the amount of the loan.

Renegotiable Rate - A renegotiable rate is a type of variable rate involving a renewable short- term "balloon" note. The interest rate on the loan is generally fixed during the term of the note, but when the balloon comes due, the lender could refinance it at a higher rate. In order for the loan to be fully amortized, periodic refinancing might be necessary.

Reschedule - Reschedule is a revised timetable for loan repayments, usually granting longer repayment periods and often involving new loans to pay old ones.

Security Interest - Security interest is the creditor's right to take property or a portion of property offered as security.

Seller's Points - Seller's points are a lump sum paid by the seller to the buyer's creditor to reduce the cost of the loan to the buyer. This payment is either required by the creditor or volunteered by the seller, usually in a loan to buy real estate. Generally, one point equals one percent of the loan amount. 

Service Charge - A service charge is a component of some finance charges, such as the fee for triggering an overdraft checking account into use.

Statement - A statement is the monthly bill from a credit card issuer that describes and summarizes the activity on an account. It includes the outstanding balance, purchases, payments, credits, finance charges and other transactions for the month.

Statement Date - TA statement date is the date on which a statement is generated, and the month's finance charges (interest) are added to the balance.

Surcharge - A surcharge is an extra charge imposed on those who purchase with a credit card instead of cash. (Currently, surcharges for any credit card purchases are prohibited.)

Variable Rate - A variable rate agreement, as differs from a fixed rate agreement, calls for an interest rate that may fluctuate over the life of the loan. The rate is often tied to an index that reflects the changes in market rates of interest. And a fluctuation in the rate causes changes in either the payments or the length of the loan term. And limits are often placed on the degree to which the interest rate or the payments can vary.