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Accrued
Interest: The
accumulation of interest that is added to the loan.
Amortization: The
process of gradually eliminating a debt by making periodic
payments to reduce it.
Annual Percentage Rate
(APR): The actual interest charged when all finance
charges and up-front fees are included. Federal
Truth-in-Lending laws require all creditors to state the
cost of their credit in terms of both the finance charge
and the APR.
Capitalized Interest:
Accrued interest which is added to the principal creating
a new and higher balance.
Compounded Loan:
As interest is periodically calculated and added to the
principal, it becomes part of the new principal amount for
the next periodic calculation of interest to be added.
Thus interest is charged on the interest.
Creditworthy: A
determination that the applicant has the ability to repay
the loan upon examination of the applicant's credit
history. Factors in the evaluation may include a minimum
monthly income, previous experience with credit, credit
bureau report and credit score.
Default: The
failure of the borrower to make an installment payment
when due, or failure to meet other terms of the promissory
note, to the extent that a reasonable conclusion is that
the borrower does not intend to pay.
Deferment: An
approved postponement of payment for a specified time.
Delinquency:
Failure of the borrower to make a loan payment when due,
or failure to meet other terms of the promissory note, but
insufficient time has elapsed to classify the borrower as
in default.
Disclosure Statement:
Statement of actual costs to the borrower for a loan
including the interest rate and any additional finance
charges.
Finance Charge:
The cost in dollars of borrowing funds from a lender. This
will be determined by the interest rate applied to the
amount borrowed as well as any fees added and the length
of time that elapses before the loan is fully repaid.
Forbearance: A
temporary postponement or extension of payments or an
agreement to reduce payments by special arrangement
between the borrower and the lender.
Garnishment: The
automatic withholding of a specific amount of a borrower's
wages or income to pay a delinquent or defaulted loan.
Interest Rate: The
rate used in the calculation of the finance charge. The
rate may be either "fixed" (unchanging) or
"variable" (based upon an index or market
condition).
Maturity Date: The
due date upon which the loan is expected to be fully paid.
Prepayment: Any
amount of money that is paid on a loan prior to the
scheduled time-- during a deferment or grace period (if
applicable) or simply an extra payment during the
repayment period. Usually, but not always, prepayment
reduces cost and carries no penalty.
Principal: The
amount of the borrowed loan.
Promissory Note:
The legal contract between the borrower and lender that
binds the borrower to repayment of the loan and specifies
the terms and conditions involved, such as the interest
rate, maturity date, penalty charges, and deferment privileges
(if any).
Repayment Schedule:
The plan for monthly installment payments on a loan. The
specific monthly amount is determined by the length of the
repayment period and is normally calculated to amortize
the loan evenly throughout the repayment period. Much of
the funds from earlier payments are channeled to pay
interest and a small portion of the principal, but as the
principal decreases over time, less interest is charged
and more of the payments is channeled to repay the
principal. Sometimes a minimum monthly payment applies.
Secondary Market:
A state or private agency (such as Sallie Mae) which
purchases a loan from the lender and thus becoming the new
owner of the loan (the money is now owed to the new
owner).
Servicer: An
organization (such as Great Lakes Higher Education
Corporation or USA Funds) that acts on behalf of the
lender or owner of the loan (sometimes referred to as the
holder of the loan) to handle the business transactions
with the borrower. This may include billing for repayment,
processing deferment forms, processing requests for
forbearance, sending out notices to borrowers about the
status of their loans, and collecting on delinquent
accounts. Some lenders service the loans themselves rather
than hiring an outside loan servicer.
Terms and Conditions:
These are the characteristics that spell out the rights
and privileges of both the borrower and the lender and
what actions each may or must take. Examples include
interest rate, length of repayment, repayment options
(equal or graduated repayments), deferment options, late
payment charges, and delinquency or default consequences.
Up-Front Fees:
Charges made to the borrower at the time the loan is
disbursed. Application, origination, insurance and
guarantee fees fall into this category. An application fee
is not refundable in the event the loan is denied (it pays
for the credit search). Guarantee, insurance, and
origination fees are charged on a percentage basis of the
total amount borrowed.
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