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Glossary of Financial & Loan Terms

A guide to financial and loan terms
Accrued interst Payable by the borrower. Interest is calculated on the unpaid principal balance daily.

Amortization Paying a loan down to a zero amount by making regularly scheduled payments of principal and interest over a fixed period of time.

Borrower One who borrows money on credit from a financial institution. The borrower signs a promissory note for the debt.

Cancellation The balance of a federal education loan may be canceled upon death or disability of the borrower.

Capitalized Interest Interest added to the principal balance when interest is due but not paid.

Co-signer A co-signer "co-signs" a loan with an individual that has no credit or questionable creditworthiness and guarantees that the loan will be repaid if the borrower defaults.

Credit Bureau An agency that reports credit and personal information to creditors. Default on education loans can remain on a credit report for as long as seven years.

Creditworthiness Favorable, or nonexistent credit history.

Default Failure to make installment payments for a loan or debt when due.

Deferment Postponement of loan payments for a length of time. Granted by the lender under certain circumstances.

Deferred Interest Interest payments postponed and paid at a later date.

Delinquent The failure of a borrower to make a loan payment when due.

Disclosure Statement Statement of the actual cost for a loan (principal & interest), including the interest rate and any additional finance charges.

Fixed Interest An interest rate that does not change for the duration of the loan.

Forbearance Granted by the lender to the borrower, at the lender's discretion: an extension of time to make a payment, reduction of the payment amount, or an allowance to stop making payments for a period of time.

Garnishment Withholding from wages to pay a debt.

Grace Period The period before the borrower must begin repaying a loan.

Guarantee Agency or Guarantor An agency that insures guaranteed education loans made by lenders.

Guarantee Fee A fee, deducted from principal that is sent to the Guarantor as insurance for a loan default.

Lender Bank, savings and loan, credit union, or other approved source of education loans. For Perkins loans, the school is the lender.

Master Promissory Note (MPN) A written agreement between a borrower and a lender. The borrower agrees to repay a debt for a fixed amount of money over a specified period of time. This agreement covers the borrower for borrowing over a number of years, avoiding having to sign a new promissory note every year.

Maturity Date When a promissory note becomes due and payable.

Principal or Principal Balance Principal is the original amount borrowed for a loan, not including interest charged. Substracting the payments made against the principal gives the principal balance.

Servicer A company that provides the billing, record keeping, and paperwork on education loans for the lender.

Variable Interest Rate of interest that is tied to a certain index and periodically "varies" or changes as the index changes.

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