Plain-English definitions for the terms you'll see in personal-loan disclosures, credit reports, and regulatory documents. Each definition is intentionally short — 50 to 100 words — and links to the related terms and educational pages where the concept is explained in depth.
A
APR (Annual Percentage Rate)
The annual cost of credit expressed as a percentage, bundling the interest rate with qualifying fees like origination charges. Federal Regulation Z requires lenders to disclose APR so different offers can be compared on a single number. APR is always equal to or higher than the stated interest rate; the larger the qualifying fees, the larger the spread.
Related: Interest Rate · Origination Fee · Regulation Z
Amortization
The schedule by which a fixed-rate loan is repaid through equal monthly payments. Early payments are mostly interest; later payments are mostly principal. The total monthly payment stays the same, but the split shifts as the outstanding balance falls.
Related: Principal · Interest Rate
Authorized User
A person added to someone else's credit-card account who can use the card but is not legally responsible for the balance. The account usually appears on the authorized user's credit report and can build positive history if the primary account is well-managed.
Annual Income
Total yearly earnings before taxes. Lenders typically ask for gross annual income on the application, then verify via tax returns, pay stubs, or bank deposits during underwriting.
Related: Gross Income · Net Income
ACH (Automated Clearing House)
The US payment network used for direct deposits, bill pay, and most lender-to-borrower disbursement. ACH transfers typically settle in 1–3 business days. Most personal-loan funding happens via ACH.
B
Bankruptcy (Chapter 7 / Chapter 13)
A federal court process for resolving overwhelming debt. Chapter 7 liquidates non-exempt assets and discharges qualifying unsecured debts. Chapter 13 sets up a 3–5 year repayment plan, after which remaining qualifying debt is discharged. Both stay on credit reports — Chapter 7 for 10 years, Chapter 13 for 7.
Related: Default
C
Cosigner
A second person who legally agrees to repay a loan if the primary borrower defaults. The cosigner's credit profile is used in underwriting alongside the borrower's, often making approval possible at a lower APR. The cosigner is fully responsible for the debt and the account appears on their credit report too.
Collateral
An asset pledged to secure a loan that the lender can seize if the borrower defaults. Auto loans use the vehicle as collateral; mortgages use the home; HELOCs use home equity. Personal loans are typically unsecured (no collateral), which is why their APRs run higher than auto or mortgage rates for the same borrower.
Related: Secured Loan · Unsecured Loan
Credit Utilization
The percentage of available revolving credit currently in use. Computed across cards: $3,000 in balances against $10,000 in total card limits is 30% utilization. Utilization is the second-largest input to FICO and the fastest lever a borrower can pull to raise their score.
Related: FICO Score · Revolving Credit
Charge-off
An accounting action a creditor takes when it considers a debt unlikely to be collected — typically after 180 days of non-payment. The debt is moved off the creditor's books but remains legally owed and is usually sold to a collections agency. Severe negative event lasting seven years on credit reports.
Related: Collections · Default
Collections
Activity by a creditor or third-party agency to recover unpaid debt after default. Methods range from letters and phone calls to lawsuits seeking judgments. A collections account on a credit report is a severe negative; the FDCPA governs what collectors can and cannot do.
Related: Charge-off · Default
D
Debt-to-Income Ratio (DTI)
The percentage of your monthly gross income that goes toward existing debt payments. Calculated as (sum of monthly debt obligations) / (gross monthly income). Most prime personal-loan lenders cap DTI at 40%–50%, with the most competitive APRs reserved for DTIs below 35%.
Related: Underwriting · Annual Income
Default
Failure to make required loan payments. Definitions vary by lender and loan type, but personal loans typically reach default after 90–180 days of missed payments. Default triggers acceleration (the full balance becomes due), collections activity, and a severe negative credit-report event lasting seven years.
Related: Collections · Charge-off
Deferment
A temporary postponement of loan payments. For federal student loans on subsidized programs, interest does not accrue during qualifying deferment. For most consumer loans, interest continues to accrue.
Related: Forbearance
E
Employment Verification
Lender process of confirming the applicant's employer, position, and start date. Methods range from a direct employer call to a third-party verification service.
Related: Income Verification · Underwriting
F
FICO Score
The credit score produced by Fair Isaac Corporation's scoring model. The dominant credit score used in US consumer lending, with multiple versions (FICO 8, 9, mortgage versions 2/4/5, auto and bankcard variants). Range 300–850. Computed independently for each of the three major bureaus, so consumers have three FICO scores that don't always match.
Related: VantageScore · Credit Utilization
Fixed Rate
An interest rate that does not change over the life of the loan. The borrower's monthly payment stays constant. Most personal loans are fixed-rate; mortgages are commonly fixed-rate for a 15- or 30-year term.
Related: Variable Rate
Forbearance
A temporary pause or reduction in loan payments granted by the lender, typically during financial hardship. Interest usually continues to accrue. Common on student loans and mortgages; less common on personal loans.
Related: Deferment
Fair Credit Reporting Act (FCRA)
Federal law (1970) governing how credit-reporting agencies collect, share, and correct consumer credit data. Gives consumers the right to a free annual credit report from each bureau, to dispute errors, and to be notified of adverse credit decisions.
G
Grace Period
The window after a payment due date during which a late payment is accepted without a fee or credit-reporting consequence. Personal loans often have a 10–15 day grace period; credit cards historically required 21 days for new purchases under the CARD Act.
Related: Late Fee
Garnishment
A court-ordered withholding of a portion of wages or bank-account funds to satisfy a judgment debt. Federal law caps garnishment of disposable income at 25% (less in many states). Lenders cannot garnish on their own authority; they must first win a court judgment.
Gross Income
Pre-tax income — what you earn before federal/state taxes, FICA, and pre-tax deductions like 401(k) contributions are removed. Used for most loan underwriting calculations including DTI.
Related: Net Income · Debt-to-Income Ratio (DTI)
H
Hard Pull (Hard Inquiry)
A credit check triggered by a credit application that other lenders can see on the consumer's report. Typically drops a FICO score 3–10 points and stays on the report for 24 months (12 for scoring purposes). Rate-shopping multiple lenders for the same loan type within 14–45 days counts as one inquiry.
Related: Soft Pull (Soft Inquiry) · FICO Score
Hard Inquiry
Synonym for Hard Pull. See Hard Pull.
I
Interest Rate
The annual cost of borrowing the principal, expressed as a percentage. Distinct from APR: the interest rate alone doesn't include origination fees and other qualifying charges. Comparing two lenders by interest rate can be misleading when one charges higher fees.
Related: APR (Annual Percentage Rate) · Fixed Rate · Variable Rate
Installment Loan
A loan with a fixed amount, fixed term, fixed (or sometimes variable) APR, and scheduled equal monthly payments. Personal loans, auto loans, mortgages, and student loans are all installment loans. Contrast with revolving credit.
Related: Revolving Credit · Amortization
Income Verification
Lender process of confirming claimed income against documentation. Methods include pay stubs, W-2s, tax returns, bank-deposit history, employer letter, or third-party verification services like The Work Number.
Related: Underwriting
J
Joint Account
A credit account held by two or more people, each fully responsible for the full balance and each able to use the account. Common for spouses and household co-borrowers. The account appears on every joint holder's credit report.
L
Loan Term
The length of time over which a loan is scheduled to be repaid, typically in months for personal loans (12–84). Longer terms produce lower monthly payments but higher total interest cost. Shorter terms produce higher monthly payments and lower total cost.
Related: Amortization
Late Fee
A fee charged when a payment is received after the grace period ends, typically $25–$50 on personal loans or up to $40 on credit cards. State law caps the maximum in some jurisdictions. Repeated late payments lead to delinquency reporting, which damages credit far more than the fee.
Related: Grace Period
Loan-to-Value Ratio (LTV)
The ratio of a loan amount to the value of the underlying collateral, expressed as a percentage. Used for secured loans: a $200,000 mortgage on a $250,000 home is an 80% LTV. Lower LTV typically qualifies for better rates because the lender's exposure is smaller.
Related: Secured Loan · Collateral
Lien
A legal claim against an asset securing a debt. The lien holder (lender) has the right to take the asset if the borrower defaults. Liens are recorded with the relevant agency — vehicle title for autos, county recorder for real estate.
Related: Secured Loan · Collateral
Loan Estimate
A standardized disclosure form lenders must provide for mortgage applications under TRID rules. Summarizes the loan amount, APR, monthly payment, closing costs, and key terms. Personal loans don't have an exact equivalent but lenders provide a similar e-sign disclosure before funding.
Related: Truth in Lending Act (TILA)
N
Net Income
Take-home pay — what lands in your bank account after taxes and pre-tax deductions. Not typically used in loan underwriting (DTI is computed on gross), but it's the right number to use when budgeting whether you can absorb a new monthly payment.
Related: Gross Income
O
Origination Fee
A one-time fee a lender charges to process a new loan, typically expressed as a percentage of the loan amount (1%–8% is common on personal loans). The fee is usually deducted from the disbursed proceeds: borrow $10,000 with a 5% fee and you receive $9,500 in cash while owing $10,000.
Related: APR (Annual Percentage Rate) · Principal
P
Prequalification
A preliminary review by a lender — typically using a soft pull — that estimates whether you'd qualify and at roughly what APR. Prequalification is not a binding offer; the lender can revise the offer after a full application and hard pull. Useful for comparison shopping without dinging your score.
Related: Soft Pull (Soft Inquiry) · Underwriting
Principal
The original amount borrowed, before any interest charges. As you make payments, the principal balance falls; interest is computed each month on the current principal balance, not on the original loan amount.
Related: Interest Rate · Amortization
Prepayment Penalty
A fee a lender charges for paying off a loan early. Most modern personal loans do not have prepayment penalties — federal law and competitive pressure have nearly eliminated them in the prime personal-loan market — but they still appear on some subprime products and certain mortgages.
Promissory Note
The legally binding written promise to repay a loan, signed by the borrower. Spells out the principal amount, APR, term, payment schedule, default conditions, and remedies. The lender holds the original note as evidence of the debt.
R
Refinance
Replacing an existing loan with a new loan, ideally at a lower APR or better terms. The new loan pays off the old loan; the borrower then makes payments on the new schedule. Common uses: refinancing a mortgage at a lower rate, refinancing high-rate cards into a lower-rate personal loan (debt consolidation).
Related: debt-consolidation
Revolving Credit
A credit facility — typically a credit card or HELOC — where the borrower can draw, repay, and re-borrow against a set limit. There is no fixed payoff schedule; the borrower pays a minimum each month and can carry a balance indefinitely (at the stated APR).
Related: Installment Loan · Credit Utilization
Regulation Z
The implementing regulation for TILA. Spells out how APR is calculated, what fees must be included, what disclosure forms must be used, and what advertising rules lenders must follow. Updated periodically by the CFPB.
Related: Truth in Lending Act (TILA) · APR (Annual Percentage Rate)
S
Soft Pull (Soft Inquiry)
A credit check that does not affect the consumer's credit score and is not visible to other lenders. Used for pre-qualification, account review, and pre-approval marketing. The borrower sees soft pulls on a personal report, but they don't factor into the FICO or VantageScore calculation.
Related: Hard Pull (Hard Inquiry) · Prequalification
Secured Loan
A loan backed by collateral. Lower APRs than unsecured loans for equivalent borrowers, because the lender's downside is bounded by the collateral value. Default risk to the borrower is real: missed payments can result in the lender seizing the pledged asset.
Related: Collateral · Unsecured Loan
Soft Inquiry
Synonym for Soft Pull. See Soft Pull.
State Usury Cap
The maximum annual interest rate a lender may charge under a state's law. Varies enormously across states — from 6%–10% in a few states (effective on certain consumer loans) up to no cap at all in some states for licensed consumer lenders. Personal-loan availability and pricing follow these caps closely.
T
Truth in Lending Act (TILA)
Federal consumer-protection law (1968) requiring lenders to disclose key credit terms — APR, finance charge, total payments, payment schedule — before the consumer signs a credit agreement. Implemented through Regulation Z.
Related: Regulation Z · APR (Annual Percentage Rate)
U
Unsecured Loan
A loan made on the strength of the borrower's credit and income without specific collateral. Most personal loans, most credit cards, and most student loans are unsecured. APRs are higher than secured equivalents to compensate for the absence of collateral.
Related: Secured Loan
Underwriting
The lender's process of evaluating a loan application — credit history, income, employment, DTI, collateral if applicable — and deciding whether to approve, at what APR, for what amount, and with what conditions.
Related: Debt-to-Income Ratio (DTI) · Income Verification
V
VantageScore
A credit score model developed jointly by Equifax, Experian, and TransUnion. Range 300–850. Used by many free credit-monitoring apps. VantageScore typically tracks FICO closely but can differ by 10–50 points for the same person, especially on thin or recently changed credit files.
Related: FICO Score
Variable Rate
An interest rate that can change over the life of the loan or credit line, usually pegged to a benchmark like the Prime Rate or SOFR. Common on HELOCs, most credit cards, and some private student loans. Variable rates start lower than fixed rates but expose the borrower to rate-rise risk.
Related: Fixed Rate
Browse our Learning Center for the full guides, or compare offers at /personal-loans.