Loan Terminology Glossary

The process of spreading out a loan into a series of fixed payments over time. Each payment is allocated between interest and principal repayments.

The total yearly cost of a loan, expressed as a percentage. It includes the interest rate and other charges related to the loan.

A large, lump-sum payment scheduled at the end of a series of considerably smaller periodic payments.

The individual or entity that receives funds from a lender under the condition of paying back the borrowed amount with interest or other charges.

Occurs when the borrower fails to meet the legal obligations of the loan agreement, typically by not making required payments.

An asset that the borrower offers to a lender as security for a loan. If the borrower defaults, the lender may seize the collateral.

The maximum amount of credit that a financial institution extends to a client.

A numerical expression based on an analysis of a person’s credit files, representing the creditworthiness of an individual. In New Zealand, this score influences loan terms and interest rates.

The act of combining several loans or debts into one low payment.

An initial payment made when purchasing an item on credit.

In terms of a loan, particularly a home loan, equity is the difference between the value of the property and the amount still owed on the mortgage.

An interest rate on a loan that remains the same for a specified period or the duration of the loan.

A person who agrees to repay the loan if the primary borrower defaults, typically used to strengthen the application if the primary borrower has weak credit.

When a client can’t meet their existing financial commitments, and arranges with the lender to make smaller payments for an agreed period of time.

A loan where the borrower pays only the interest for some or all of the term, with the principal balance unchanged during the duration of the interest-only period.

The organisation or individual that provides funds to the borrower under agreed terms for repayment.

A contract between the lender and the borrower that details the terms and conditions of the loan.

The final payment date of a loan at which point the principal and all remaining interest are due to be paid.

A financial term used by lenders to express the ratio of a loan to the value of an asset purchased. It is often used in mortgage loan applications.

A fee charged by a lender on entering into a loan agreement to cover the costs of processing the loan.

An agreement between the lender and the borrower to pause or reduce repayments for a specified period.

The interest rate or fees charged by a lender, reflecting the risk they perceive in lending to a particular borrower.

The principal is the amount borrowed, and payments are the regular instalments made  towards repaying the loan.

The process of replacing an existing loan with a new loan, typically to lower the interest rate or adjust the other terms.

A loan that is backed by collateral, reducing the risk for the lender.

The total amount the borrower will have paid by the end of the loan period, including all interest and fees.

The process by which a lender evaluates the creditworthiness of a potential borrower.

A loan that is not protected by collateral. If the borrower defaults, the lender has no claim on the borrower’s assets.

An interest rate on a loan or mortgage that fluctuates with the market or an index.

The legal document that establishes a person as the legal owner of a vehicle. In the context of loans, it can sometimes serve as collateral.