A lot of the language related to personal loans can seem complicated. We know that you want to be well-informed as you consider applying for a loan and understanding the basic terminology is your first step. Our loan terminology glossary will help you better understand your options, as well as what you’re agreeing to if you choose to accept a loan. For more in-depth information on some of this key vocabulary, look to the recommended further reading.
Debt consolidation is combining multiple debts into one monthly payment. In some cases, it makes sense for borrowers to bundle higher interest debt owed to multiple creditors into one loan with a lower rate.
Learn more about debt consolidation options from Discover.
An unsecured loan is a personal loan that does not require the borrower to provide collateral. Personal loans, credit cards and student loans are considered unsecured loans. It’s an important distinction to understand: a personal loan is not a secured loan and does not put your collateral at risk.
A secured loan is a loan that requires the borrower to put up collateral, such as a house or a car. If the borrower defaults, the lender can generally take possession of that collateral.
Recommended reading: To better compare the advantages, requirements and differences between secured and unsecured loans, read more here.
A fixed installment loan offers you a lump sum of money, which you pay back over a defined period of time with a set number of scheduled payments. It may be unsecured, like a personal loan, or secured, like a mortgage. In either case, your monthly payment should not vary.
Revolving credit, like a credit card, allows you to pay your balance in full or make a partial payment each month. With each payment, minus fees and interest, you may increase the amount available to you to borrow, up to the amount of your set credit limit. Because the amount you owe and your interest payment may vary, monthly payments can change, and the account does not have a set number of payments.
This refers to how long you have to pay off a loan. The length of repayment could affect the amount of interest you pay throughout the life of the loan as well as the amount of your monthly payment. For example, if you choose to pay off the loan as quickly as possible, you could lower your total interest, but increase your monthly payment. Conversely, a longer repayment period could mean lower monthly payments, but more interest paid overall.
Annual percentage rate
The annual percentage rate, commonly referred to as APR, represents the annualized cost of credit for a loan and may be higher than the interest rate.
An origination fee is an upfront fee charged by a lender for processing a new loan. It is usually a small percentage of the loan. Some lenders, like Discover, have no origination fees
Recommended reading: Learn how to understand your personal loan agreement, including more information terms, fees, and penalties and why they matter.
A credit score is a numerical measurement reported by the three major credit bureaus – Equifax, TransUnion and Experian. It’s determined by a borrower’s credit history, which can include bill-payment history, outstanding debt and the number of open credit card accounts, among other things. Credit scores help lenders evaluate the creditworthiness of an applicant when making a credit decision.
A credit report is the information reported by credit reporting agencies showing a consumer’s credit history and standing. Credit reports provide lenders a snapshot of a consumer’s credit history and behavior, including payment history and the status of credit accounts.
With this basic primer of personal loans vocabulary, you should be able to read and analyze with more clarity to determine which loan terms are right for you. Knowing these personal loan definitions may help you get just what you want, without surprises.
If you’re ready to move forward, be sure to read what you need to apply for a personal loan.