Guide to loan terms

Listed below is a guide to loan terms. It is a useful list of definitions of loan terms that may or may not be familiar to you. Keep it nearby as you will never know when you might need it for quick reference.


Process in which interest accumulates on a borrower’s loan.


A repayment method in which the amount you borrow is repaid gradually though regular monthly payments of principal and interest over the term of the loan.

Annual Percentage Rate (APR)

The APR shows the cost of a loan expressed as a yearly interest rate, including the interest and other fees associated with the loan.


First step in the official loan process to gather and record information about the potential borrower.


Person who has been approved to receive a loan and is then obligated to repay it.


Adding unpaid accrued interest to the principal balance. Capitalizing interest increases the principal amount of the loan and the total cost of the loan.


Property pledged as security for a loan to ensure repayment of a loan.

Credit Agencies/Credit Bureaus

Organizations that collect individual consumer credit information and provide credit reports to potential lenders.

Credit History

History of an individual’s debt repayment. For most types of loans, lenders use this information to gauge a potential borrower’s ability to repay a loan.

Credit Rating

Grade assigned to denote the net worth and credit standing of an individual or a business.

Credit Report

Record that lists all past and present debts and the timeliness of their repayment and documents an individual’s credit history.


Amount owed to another that must be repaid.


Failure to repay a loan according to the terms of the loan.


Failure of a borrower to make a timely payment on a loan.


Fee charged for the use of money.

Interest Rate

The amount of interest charged on a loan, usually expressed as a percentage.


Entity that provides loan funds to the borrower. Depending on the type of loan, the lender may be a bank or other financial institution.


Money borrowed from a lending institution, usually repaid with interest.

Loan Applicant

Party applying to the lender for a loan.


Binding legal document you sign when you get a loan. It lists the conditions under which you’re borrowing and the terms under which you agree to pay back the loan (also called a promissory note or a mortgage note).


Periodic (usually monthly) instalments paid to a lender to be applied toward repaying your loan.


Loan amount borrowed from a lender, not including interest or additional fees.


Process of paying back borrowed money.


Time limit within which a loan must be repaid.

Variable Interest Rate

Interest rate that changes periodically in relation to an index. Payments may increase or decrease accordingly.

About the author
John Mussi is the founder of Direct Online Loans who help UK homeowners find the best available loans via the website.