APR (Annual Percentage Rate)

The total cost of borrowing expressed as a yearly rate, including interest and most fees. APR is a more complete number than the interest rate alone, and is the figure most useful for comparing loans of similar terms.

Amortization

The schedule by which a loan is paid down. In an amortizing loan, each monthly payment covers a portion of interest and a portion of principal; early in the loan, more of the payment goes to interest.

Cosigner

A person who signs a loan agreement alongside the primary borrower and becomes legally responsible for repayment if the primary borrower defaults. Cosigners can lower the rate on a loan but take on real legal risk.

Credit Utilization

The percentage of your available revolving credit (typically credit cards) that you are currently using. Generally, keeping utilization below 30%, and ideally below 10%, helps credit scores.

Debt-to-Income Ratio (DTI)

Total monthly debt payments divided by gross monthly income. Most lenders want DTI under 43–50% to approve a personal or mortgage loan; the lowest rates typically go to applicants with DTI under 35%.

Discount Points

Upfront fees paid at closing on a mortgage in exchange for a lower interest rate. One point typically equals 1% of the loan amount and reduces the rate by roughly 0.25 percentage points, though exact terms vary.

Escrow

A third-party account that holds funds — typically property taxes and homeowner's insurance premiums for a mortgage — and disburses them on the borrower's behalf. Most mortgages with less than 20% down require escrow.

FICO Score

A credit score model produced by Fair Isaac Corporation, ranging from 300 to 850, used by most US lenders. Scores above 740 are considered excellent for most consumer-loan underwriting.

Fixed Rate

An interest rate that does not change over the life of a loan. Most personal loans, auto loans, and conventional mortgages in the US are fixed-rate.

Hard Inquiry (Hard Pull)

A credit check that occurs when you formally apply for credit. Hard inquiries can lower a credit score by a few points and remain on a credit report for two years.

HELOC (Home Equity Line of Credit)

A revolving line of credit secured by your home equity. HELOCs typically have variable rates and a draw period of 5–10 years followed by a repayment period.

LTV (Loan-to-Value Ratio)

The size of a loan relative to the value of the asset securing it. A $300,000 mortgage on a $400,000 home has a 75% LTV. Lower LTV typically results in better rates.

Origination Fee

A fee charged by a lender for processing a new loan. Origination fees are typically 0–8% of the loan amount and are usually deducted from the funds disbursed to you, not paid separately.

Prepayment Penalty

A fee charged when you pay off a loan ahead of schedule. Most consumer personal loans and conforming mortgages do not charge prepayment penalties; some auto loans and business loans do.

Pre-Qualification

An informal estimate from a lender of what you might borrow and at what rate, based on a soft credit pull. Pre-qualification is not a binding offer and does not affect your credit score.

Refinance

Taking out a new loan to pay off an existing one, typically to secure a lower interest rate, change the loan term, or convert from a variable to fixed rate.

Soft Inquiry (Soft Pull)

A credit check that does not affect your credit score. Used for pre-qualification, account reviews, and most rate-shopping tools.

Term

The length of time over which a loan is scheduled to be repaid. Personal loans typically have terms of 2–7 years; mortgages, 15–30 years.

Underwriting

The lender's process of evaluating a loan application, including verifying income, credit, and other risk factors before final approval.

Variable Rate

An interest rate that changes over the life of a loan, typically tied to a benchmark like the Prime Rate or SOFR. Variable-rate loans can be cheaper initially but carry the risk of higher payments later.