Navigating the world of finance can be like learning a new language. With so many terms and phrases to understand, it can be overwhelming. But don’t fret! We at First Union Lending are here to decode some of the most common finance lingo for you.
A fundamental term in finance, the principle refers to the amount borrowed or the outstanding balance owed on a loan, not including the interest or fees. It’s the core of your loan, the very foundation of your financial agreement.
Interest is the cost of borrowing money, typically expressed as a percentage. Think of it as the price you pay for the privilege of using someone else’s money to fund your dreams or needs.
Collateral is your financial safety net. It’s the property or assets that a borrower pledges to a bank or lender as security for a loan. The lender can seize this if the borrower defaults on loan payments. It’s a way for lenders to mitigate risks and ensure they can recover their money.
APR (Annual Percentage Rate)
While not the most accurate indicator of the cost of capital, APR is still an important factor. It provides a snapshot of the yearly cost of your loan, including all fees and interest.
Amortization is gradually paying off a loan over time through regular payments. When you receive an amortization schedule, it will determine how much each payment goes towards the interest and the principal. It’s your roadmap to debt freedom.
A default occurs when a borrower fails to make payments on a loan, breaching the contract. It’s a situation everyone wants to avoid, as it can impact your credit score and future borrowing ability.
Understanding these terms is your first step towards becoming financially savvy. At First Union Lending, we strive to make finance accessible, helping you make informed decisions about your financial future.