Financial terms glossary

After you’ve been approved for a loan or credit card, you’ll receive an account agreement from the creditor. The agreement lists the conditions of your loan or credit card account, including annual percentage rate (APR), minimum payment requirements, fees, and penalties.

The person who owns an account is called the account holder. The account holder is responsible for making payments and keeping the conditions of the account agreement.

An account statement is a summary showing all your account activity during a set period of time. It will list the payments you’ve made as well as any    charges, interest, fees, or penalties you have accrued.

APR tells you the total cost of borrowing money each year, expressed as a percentage, and includes the interest and fees you pay. These fees could be things like legal fees, application fees, origination fees, and more. Creditors are required by law to disclose the annual percentage rate (APR) of borrowing money so that borrowers can compare financing offers.

You can add another person’s name to your account and allow them to make charges to your credit card. This person is called an authorized user. They can receive a credit card showing their name and your account number.

Many creditors allow you to set up automatic payments to keep your bills paid on time. With this method, money is automatically deducted from your bank account on the schedule you choose. Your payments will then show on your account statement.

The average daily balance on your credit card is the total of the amounts you owe on each day of a billing cycle, divided by the number of days in the cycle.

The total amount of money you currently owe on your loan or credit card. Your balance may include interest, fees, and penalties.

A balance transfer means moving your debt to a new credit card that pays off the balance on your old card or cards. People usually do this to take advantage of a new credit card with a lower APR, or an introductory period when no interest is charged.

A balloon payment is one large payment that’s due at the very end of your loan term. Some loans require balloon payments, others don’t.

A billing cycle is the time between two account statements. Most billing cycles last from 28 to 31 days, or roughly a month.

A person or organization that borrows something, especially money from a bank or other financial institution.

A plan that outlines what money you expect to earn or receive (your income) and how you will save it or spend it (your expenses) for a given period of time; also called a spending plan.

Account holders and authorized users on credit cards are sometimes called cardholders.

When you withdraw money from an ATM or a bank using your credit card account, it’s called a cash advance. Your credit card agreement will tell you the maximum amount you can withdraw by cash advance.

An asset that secures a loan or other debt that a lender can take if you don't repay the money you borrow. For example, if you get a home loan, the bank's collateral is typically your house.

An individual who signs a loan, credit account, or promissory note of another person as support for the credit of the primary signer and who becomes responsible for the debt obligation.

Borrowing money, or having the right to borrow money, to buy things. Usually, it means you’re using a credit card, but it can also mean that you got a loan.

An open-ended loan that allows you to borrow money up to a certain limit and carry over an unpaid balance from month to month. There is no fixed time to repay the loan as long as you make the minimum payment due each month. You pay interest on any outstanding credit card balance.

A summary of how you've used your credit card for a billing period, including credit card debt, fees, and operating expenses.

Credit history is the recorded details of how you’ve managed your credit accounts. To qualify for a loan or a credit card, it helps to have a good credit history.

A limit set by the credit card company on how much you can charge on the card that is issued to you. You can use your credit card to make purchases up to your credit limit.

A written or digital record containing your credit history. It may also include information about bankruptcies, foreclosures, liens, or financial judgements against you.

Your credit score is a three-digit number between 300 and 850 that gives lenders an idea of how likely you are to make payments on time.

Your credit utilization ratio is the amount of credit you’re currently using divided by your total credit limit. It’s expressed as a percentage.

Money you owe another person or a business.

Consolidation means that your various debts, whether they are credit card bills or loan payments, are rolled into a new loan with one payment schedule. If you have multiple credit card accounts or loans, consolidation may be a way to simplify or lower payments. Debt consolidation does not erase your debt. You might also end up paying more by consolidating debt into another type of loan depending on the terms in your loan agreement.

Your due date is the last day you can make a minimum payment on your account without penalty. By law, your credit card due date must always fall on the same day each month. This date must be at least 21 days after the end of your billing cycle.

Money made from working for someone who pays you or from running a business. This includes all the income, wages, and tips you get from working.

A cash reserve that's specifically set aside for unplanned expenses, financial emergencies. Some common reasons to use an emergency fund include car repairs, home repairs, medical bills, or a loss of income.

The ability to meet all financial needs (today and over time), feel secure in your financial future, absorb a financial shock, and have the financial freedom to make choices to enjoy life. 

Expenses, like bills, that must be paid regularly and generally cost the same amount. Some fixed expenses, like utility bills (gas or electricity), may   also be variable because the amount changes each month depending on usage.

An illegal act that occurs when people try to trick you out of your personal information and your money.

A fraudulent charge is any unauthorized charge made to your credit card. If you see a charge you don’t recognize on your credit card statement, call your card issuer right away. It could mean that someone has stolen your credit card number and is using your account without your permission.

The number of days you have to pay your bill in full before finance charges start. Without this period, you may have to pay interest from the date you use your card or when the purchase is posted to your account.

Total pay before taxes and other deductions are taken out.

A fee charged by a lender, and paid by a borrower, for the use of money. A bank or credit union may also pay you interest if you deposit money in certain types of accounts.

A percentage of a sum borrowed that is charged by a lender or merchant for letting you use its money. A bank or credit union may also pay you an interest rate if you deposit money in certain types of accounts.

To commit money to earn a financial return; the strategic purchase or sale of assets to produce income or capital gains.

Something you spend your money on that you expect will earn a financial return.

A late payment is a payment made after its due date. You may be charged a fee or penalty for late payments. Late payments can also have a negative impact on your credit score.

The act of giving something to someone with the understanding that they will give it back to you.

An organization or person that lends money with the expectation that it will be repaid, generally with interest.

Something that is a disadvantage, money owed, or a debt or obligation according to law.

A measure of the ability and ease with which you can access and use your money.

Money that needs to be repaid by the borrower, generally with interest.

A loan agreement is a contract that explains all the conditions of your loan. It also tells you what will happen if you miss a payment or have a legal dispute with your lender.

The minimum dollar amount that must regularly be paid on a loan, line of credit, or other debt.

A service that allows you to use your smartphone or tablet to manage your bank or credit union account without the aid of a teller. Generally, you can deposit checks into your account using this service, but not cash.

A money order can be used instead of a check. You can buy a money order to pay a business or other party.

Amount of money you bring home in your paycheck after taxes and other deductions are taken out; also called take-home pay.

A service that allows you to use a secure website to manage your bank or credit union account without the aid of a teller. While you can transfer money between accounts using this service, you generally cannot deposit checks or cash.

A bill-paying method you set up with your bank or credit union. You use online banking to give your bank the merchant or service provider’s information, and your bank makes the payment according to the amount and schedule you set up. Online bill paying may or may not also be offered on a bank’s or credit union’s mobile application.

An overdraft occurs when you don’t have enough money in your account to cover a transaction, but the bank pays the transaction anyway.

This tells you exactly how much each of your debt payments will be.

There are many ways to make debt payments, including cash, credit card, debit card, wire transfer, check, by phone or money order. Check your account agreement to see what your creditor’s preferred payment method is and whether you can choose which method you use.

A card on which you load money in advance to spend. While a prepaid card might look like a debit or credit card, there are differences. A debit card is linked to your checking account. When you use a credit card, you’re borrowing money. A prepaid card is not linked to a checking bank or credit union account. In most cases, you can’t spend more money than you have already loaded onto your prepaid card.

Payment of all or part of a debt before it comes due.

A fee lenders can charge borrowers if they pay off a loan early.

You may receive a prequalification offer from a creditor. This means they’re inviting you to apply for one of their loans or credit cards, but it does not guarantee that you will qualify.

In the lending context, principal is the amount of money that you originally received from the creditor and agreed to pay back on the loan with interest. In the investment context, it is the amount of money you contribute with the expectation of receiving income.

The profit or loss on an investment expressed as a percentage.

Sometimes called automatic payments, recurring payments are a tool you can use to pay your bills with your bank account on a specific schedule. These payments are automatically sent to your creditor on the date you choose. They are a great way to stay current with your bills.

The repayment schedule tells you how frequently you have to make loan payments.

Your loan’s repayment term is the amount of time you have to pay back the entire loan. Personal loan repayment terms are normally between 12 months and five years, but can be even longer.

The profit or loss on an investment.

Exposure to danger, harm, or loss.

Setting something, like money, aside to use in the future.

Money you have set aside in a secure place, such as in a bank account, that you can use for future needs or to make specific purchases.

An account at a bank (sometimes called a share savings account at a credit union) used to set aside money and that pays you interest.

The amount of money you plan to put aside for a specific purpose.

A dishonest trick used to cheat somebody out of something important, like money. Scams can happen by phone, email, postal mail, text, or social media.

Credit card that typically requires a cash security deposit. The larger the security deposit, the higher the credit limit. Secured cards are often used to build credit history.

A secured loan is a loan backed by something of value that you own, also called collateral. Many types of assets can be used as collateral, such as your car or home. Because of the collateral, lenders take on less risk and can offer better pricing or larger loans.

Money owed to taxpayers when their total tax payments are greater than the total tax. Refunds are received from the government.

Required payments of money to governments, which use the funds to provide public goods and services for the benefit of the community as a whole.

A fixed or limited period of time for which something lasts or is intended to last (for example, a five-year loan, a three-year certificate of deposit, a one-year insurance policy, a 30-year mortgage).

A credit card transaction is a payment, purchase, or cash advance made using your credit card.

Unbanked households don’t have a checking or savings account at an institution that is insured by the Federal Deposit Insurance Corporation (FDIC) or the National Credit Union Administration (NCUA).

A person who has an account at a bank or credit union, but also uses an alternative financial service like a payday loan, check cashing, or a pawn shop loan.

Income people receive even if they don’t work for pay. Can include things like children’s allowances, stock dividends paid by corporations, and financial gifts.

A loan that does not use property as collateral (such as most types of credit cards). Lenders consider these loans to be riskier than secured loans, so they may charge a higher rate of interest for them. If the loan is not paid back as agreed, the lender can also start debt collection, file negative information on your credit report, and can sue you.

The amount of money that something is worth.

Expenses that change in amount from month to month.

A kind of electronic money, like bitcoin. It’s a digital representation of value that is not issued by a government, such as a central bank or a public authority but is accepted as a means of payment and can be transferred, stored, or traded electronically.

Compensation received by employees for services performed. Usually, wages are computed by multiplying an hourly pay rate by the number of hours worked.

Tricking someone into wiring or transferring money to steal from them. One common example of a wire transfer fraud is the “grandparent scam.” This is when a scammer posing as a grandchild or a friend of a grandchild calls to say they are in a foreign country, or in some kind of trouble, and need money wired or sent right away.

If your credit card comes with zero liability protection, you won’t be responsible for any fraudulent charges made on your account. You just need to be sure you report any suspicious activity to your lender right away.