Financial terms and what they mean


ALBANY, N.Y. (NEWS10)- With a large portion of people unemployed, financial institutions are offering many ways to help ease the debt burden of people struggling to pay bills. With so many options it’s important to know exactly what specific financial terms mean.

Most banks are offering forbearance or payment deference on auto, home, and personal mortgages.

But what’s the difference between the two?

An online dictionary to help people understand what financial terms mean is available on News10 ABC has listed some of the more common terms currently being used from the site.

  • Accrued interest– this interest builds on itself until a debt is completely paid off. It is determined by the unpaid balance of the original loan.
  • Annual Percentage Rate (APR)– the amount shown as a percentage that represents yearly costs of borrowing over the term of the loan or credit card.
  • Bankruptcy– a legal procedure where the debtor’s assets are liquidated by the court to account for financial obligations. Although the debtor is able to start over, the negative action remains on the credit report for seven to 10 years.
  • Capitalization– adding unpaid interest to the original amount borrowed.
  • Chapter 7 bankruptcy– the more common type of bankruptcy that allows debtors to liquidate debts.
  • Chapter 13 bankruptcy– debts are reorganized and debtors can keep property.
  • Consolidation– combining monthly payments into one payment, often through a consolidation loan.
  • Default- the status of a loan that is not repaid according to the terms of the promissory note. Federal student loans enter default status if payment hasn’t been made in more than 270 days.
  • Deferment– a period of time when loan payments (including principal and interest) are temporarily delayed.
  • Delinquency– loan or account status when a borrower misses payments as specified by the repayment period in the loan agreement.
  • Forbearance– a temporary postponement granted by the lender when the borrower cannot make payments because of financial hardship. Interest accrues and is added to the overall amount owed.
  • Loan forgiveness– writing off all or part of a federal student loan balance when the borrower meets certain criteria like a career in an eligible field such as teaching, law enforcement, and others.
  • Principal– the amount borrowed, not including capitalized fees and interest.
  • Refinancing– replacing an old loan with a new loan at a different interest rate by the same individual.
  • Simple interest– the interest rate charged on the principal of a loan.
  • Subsidized loan– a type of need-based loan for which the government pays the interest while the borrower is in school and during the grace deferment periods.
  • Unsubsidized loan– a type of loan for which the government doesn’t pay the interest. The borrower is responsible for interest at the moment funds are disbursed.

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