Plain-English reference

Personal loan glossary.

Fifty terms used in U.S. personal lending, explained in plain English by our editorial team. Each definition is short, factual, and self-contained so you (or your answer-engine of choice) can quote it without needing the rest of the page.

Reviewed by the Compliance Review team. Editorial policy.

Rates & terms

APR (Annual Percentage Rate): APR is the yearly cost of borrowing, expressed as a percentage of the loan amount. It includes interest plus most lender fees, so it's a more complete measure of cost than the interest rate alone.
Interest rate: The interest rate is the percentage of the loan balance charged per year as interest, excluding fees. It is a component of, but smaller than, the APR.
Fixed interest rate: A fixed rate stays the same for the entire life of the loan, so the monthly payment never changes. Most U.S. personal loans are fixed-rate.
Variable interest rate: A variable rate can change over the life of the loan, usually tied to an index like the prime rate. Monthly payment can rise or fall.
Prime rate: The prime rate is the benchmark interest rate U.S. banks publish for their most creditworthy commercial customers. Many consumer rates are quoted as prime + a margin.
Loan term: The loan term is how long you have to repay the loan, usually expressed in months. Common personal-loan terms are 24, 36, 48, 60, and 72 months.
Principal: Principal is the original loan amount you borrowed, before interest. Each monthly payment goes partly to principal and partly to interest.
Origination fee: A one-time fee a lender charges to process a new loan. Usually 1% to 8% of the loan amount, deducted from the proceeds or added to the balance.
Amortization: Amortization is the schedule by which a loan is paid off through fixed monthly payments, with each payment split between interest and principal.
Monthly payment: The fixed dollar amount due each month on an installment loan. Determined by principal, APR, and term using the standard amortisation formula.

Credit

Credit score: A three-digit number (typically 300 to 850) summarising your credit history. Lenders use it to predict the likelihood you'll repay.
FICO score: FICO is the credit-scoring model used in roughly 90% of U.S. lending decisions. Scores range from 300 to 850.
VantageScore: VantageScore is a competing credit-scoring model jointly developed by the three major credit bureaus. Also runs 300 to 850.
Credit report: A record of your credit history maintained by the three U.S. credit bureaus. You're entitled to one free copy per year from each bureau.
Soft credit inquiry: A credit check that does not affect your credit score. Used for pre-qualification and rate-shopping.
Hard credit inquiry: A credit check that may lower your credit score a few points and remains on your credit report for up to 24 months.
Debt-to-income ratio (DTI): Your monthly debt payments divided by your gross monthly income. Lenders use DTI to assess how much new debt you can afford.
Credit utilisation: The share of your available revolving credit you're currently using. Below 30% is generally healthy; below 10% is ideal for credit scores.
Subprime: A credit profile with a FICO score below approximately 620. Loans to subprime borrowers carry higher APRs to reflect higher default risk.

Application

Pre-qualification: A preliminary check that estimates the loan terms you might qualify for, based on a soft credit inquiry that does not affect your score.
Pre-approval: A stronger lending check than pre-qualification, often involving a hard credit inquiry and a conditional commitment from the lender.
Underwriting: The lender's process of evaluating credit, income, identity, and risk before approving and pricing a loan.
Co-signer: A second person who agrees to repay your loan if you don't. A strong-credit co-signer can help you qualify or lower your APR.
Co-applicant: A second borrower who shares both the obligation to repay and access to the funds. Different from a co-signer.

Repayment

Installment loan: A loan repaid in fixed monthly payments over a set term. Personal loans, auto loans, and mortgages are all installment loans.
Revolving credit: Credit you can repeatedly draw on up to a limit, with a minimum monthly payment based on the current balance. Credit cards and HELOCs are revolving.
Prepayment penalty: A fee some lenders charge if you pay off the loan before the scheduled end of the term. Most U.S. personal loans do not have one.
Late fee: A fee charged when you don't make a loan payment by its due date. Typically $15 to $40 depending on the lender and state.
Delinquency: Missing a scheduled payment by 30 days or more. Reported to credit bureaus and a major negative factor in credit scoring.
Default: Failure to repay a loan according to its terms. Usually declared after 90 to 120 days of missed payments, depending on lender and product.
Charge-off: An accounting action a lender takes after concluding a debt is unlikely to be repaid. Doesn't erase the debt; it stays on your credit report.
Debt consolidation: Combining multiple debts into a single loan, usually to lower the overall interest rate or simplify payments.
Refinance: Taking out a new loan to pay off an existing loan, usually to secure a lower APR or change the term.
Minimum payment: The smallest amount you must pay each month to avoid late fees and stay current. Common on credit cards and other revolving credit.

Lender types

Personal loan: An unsecured installment loan that can be used for almost any personal purpose. The most flexible mainstream U.S. consumer-loan product.
Unsecured loan: A loan that doesn't require collateral. The lender relies on your credit and income to underwrite. Most personal loans are unsecured.
Secured loan: A loan backed by collateral the lender can seize on default. Auto loans, mortgages, and HELOCs are secured. APRs are lower than for unsecured loans.
HELOC (Home Equity Line of Credit): A revolving line of credit secured by your home equity. APRs are typically lower than personal loans, but the home is collateral.
Credit union: A member-owned, not-for-profit financial cooperative. Often offers lower personal-loan APRs than banks for the same credit profile.
Online lender: A lender that originates and services loans entirely online. Decisions in minutes; funding as fast as the next business day.
Marketplace lender: A platform that matches borrowers with multiple lenders from a single application, so you can compare offers without applying separately.

Regulation

TILA (Truth in Lending Act): The federal law that requires lenders to disclose loan terms, APR, fees, and the schedule of payments before a borrower signs.
FCRA (Fair Credit Reporting Act): The federal law that governs credit reports and credit-bureau practices, including your right to a free annual report and to dispute errors.
ECOA (Equal Credit Opportunity Act): The federal law that prohibits lender discrimination based on race, religion, sex, marital status, age, national origin, or receipt of public assistance.
MLA (Military Lending Act): Federal law capping consumer-credit APRs to active-duty service members and their dependents at 36% (the Military APR, or MAPR).
CFPB (Consumer Financial Protection Bureau): The federal agency that supervises and enforces consumer financial-protection laws across most U.S. lenders.
TCPA (Telephone Consumer Protection Act): The federal law governing telemarketing calls and texts, including the prior-express-written-consent requirement for autodialed marketing.
GLBA (Gramm-Leach-Bliley Act): The federal law requiring financial institutions to disclose their information-sharing practices and safeguard customer data.