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Financial Glossary: Important Terms Related to Personal Loans

Personal loans are useful in handling almost all kinds of financial situations. From building your ideal home to going to your dream vacation destination, you are free to use the money in whatever you want. But before applying for a loan, knowing more about it is important. Unfortunately for many people, the only financial education they have ever received is random pieces of advice from friends and family.

To ensure you don’t meet the same fate, increasing your own financial literacy should be your priority. Start by familiarizing yourself with the terminology. Here are some common financial terms you may encounter as you apply for a personal loan:

Annual percentage rate

The annual percentage rate (APR) refers to the amount you pay to borrow money over a year. It includes interest charged on your loan and upfront finance charges, such as application fees or loan origination fees. For example, suppose you secure a 1,000-dollar loan with a ten percent APR. In that case, You would be charged 150 dollars if you failed to make any payments for a year.

Credit report

It is a document that contains your payment records and debts. It also includes negative credit information, like legal judgments, charge-offs, and collection accounts. Credit reports are generated and maintained by three credit bureaus for consumers: Equifax, Experian, and TransUnion.

Debt-to-income ratio

Debt-to-income (DTI) ratio is your monthly debt payments, including mortgage or rent, loans, car payments, and more, divided by your gross monthly income. It compares how much you owe to how much you earn monthly and is one of the main factors lenders and financial institutions use to qualify loan borrowers.

Debt consolidation

Debt consolidation means taking out a new loan to pay off your debts. In other words, it combines one or more debts into one. Some debts you can consolidate are personal loans, auto loans, and credit cards.

Installment loan

An installment loan is a set amount of borrowed money you pay with interest through fixed monthly payments. Some common types of installment loans include personal loans, student loans, mortgages, and auto loans.

Interest rate

This is the amount of money a lender or financial institution charges you for taking out a loan. To multiply your monthly interest payment, multiply your outstanding balance by the interest rate, then divide it by 12.

Origination fee

An origination fee is an upfront operational fee charged by a lender to cover loan processing costs. It can be expressed as a percentage of the loan amount or a specific dollar amount. Note that not all personal lenders charge this type of fee, but you are more likely to pay one if you have bad credit.


Refinancing is the process of paying off an existing loan with a new one. This tactic helps lower monthly payments, get more favorable loan terms, and save money on interest.


When making a major financial decision, like applying for a small personal loan, make sure that you know what you are getting into. You can do this by educating yourself, being proactive in doing your research, and remembering the terms listed in this glossary before starting the personal loan application process.

If you are interested in applying for a personal loan in Pelham, contact When Ends Don't Meet. We aim to loan responsibly and offer loans ranging from 250 dollars to 1,700 dollars to help you get the cash you need fast. Apply now!

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