Debt – A Glossary of Terms

Bankruptcy – Having been legally declared financially bancrupt. There are two varieties of chapter – liquidation, through which your money owed are cleared (discharged) and reorganization, through which you present the court docket with a plan for the way you propose to repay your money owed.

Collateral – Property acceptable as safety for a loan or different obligation.

Collection Agency – A firm employed by a creditor to gather a debt that it’s owed.

Contract – An settlement between two or extra events, often written down and enforceable by regulation .

Cosigner – To endorse (one other’s signature), as a loan settlement, lease or credit score utility. If the first debtor doesn’t pay, the cosigner is totally accountable for the loan or debt.

Credit Bureau – An group to which enterprise corporations apply for credit score data on potential prospects.

Credit Report -An account of your credit score historical past, ready by a credit score bureau. A credit score report will comprise credit score historical past, comparable to what you owe to whom and whether or not you make the funds on time, in addition to private historical past, comparable to your former addresses, employment report and any lawsuits through which you may have been concerned.

Creditor – A individual or entity (comparable to a financial institution) to whom a debt is owed.

Debtor – A individual or entity (comparable to a financial institution) who owes cash.

Debt to Income Ratio – Most mortgage lenders use this ratio to research your monetary nicely-being. It is figured through the use of your month-to-month debt divided by your month-to-month earnings. The decrease the share the higher your monetary image. This is also known as credit score worthiness.

Default – To fail to pay cash when it’s due. A default on a mortgage or loan takes place once you fail to make the loan funds on time, fail to take care of satisfactory insurance coverage or violate another provision of your settlement with the mortgage / loan firm.

Discharge (of money owed) – A court docket’s writing of off the money owed of an individual or enterprise that has filed for chapter.

Dischargeable Debts – Debts that may be erased by going via chapter.

Down Payment – A money cost made by a purchaser once they buy a property.

Equity – An enhance within the worth of your house or lower within the loan quantity on your house creates fairness. Equity is the distinction between what’s owed on your house and the sale worth. Most house fairness lenders will permit you to borrow as much as 80% of that worth.

Fair Isaac and Company – Fair Isaac is the corporate accountable for creating the favored FICO rating. This three digit rating is created utilizing data out of your credit score report and ranges from 300-850.

Foreclosure – The compelled sale of property to repay a loan on which the proprietor of the property has defaulted.

Garnishment – A court docket order directing a 3rd occasion who holds cash or property belonging to a defendant to withhold it and seem in court docket to reply inquiries.

Grace Period – A interval of time throughout which you aren’t required to make funds on a debt.

Guarantor – A one that makes a legally binding promise to both pay one other individual’s debt or carry out one other individual’s responsibility if that individual defaults or fails to carry out.

Interest – A fee you pay a financial institution or different creditor for lending you cash or extending you credit score. Usually calculated as a proportion of the mortgage or loan.

Lien – The proper to take and maintain or promote the property of a debtor as safety or cost for a debt or responsibility.

Loan Consolidation – The combining of a quantity of loans right into a single new loan. Usually performed to realize extra beneficial phrases e.g. decrease value repayments or longer time to pay.

Principal – A sum of cash owed as a debt, upon which curiosity is calculated. If you bought an merchandise for $100 in your credit card that will be the principal stability.

Repossession – A creditor’s taking of property that has been pledged as collateral for a loan.

Secured Debt – A debt on which a creditor has a lien. A automobile loan can be an instance of secured debt.

Term – The time required to repay a loan.

Unsecured Debt – A debt that’s not tied to any merchandise of property. Credit card debt is an instance of unsecured debt.

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