Personal Loan Glossary: 61 Terms From a Rate Sheet and Truth in Lending Disclosure, Explained

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Terms, alphabetically

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Adverse action notice: The written notice a lender must send within 30 days of declining an application or offering worse terms, stating the main reasons and your right to a free copy of the credit report used. Required by the Equal Credit Opportunity Act. What to do if declined →
Amortization: The schedule by which a fixed payment is split between interest and principal over the term. Early payments are mostly interest; later ones mostly principal. Personal loans are fully amortizing: the last payment brings the balance to zero.
Amount financed: The credit actually provided to you: the loan amount minus any prepaid finance charge such as an origination fee. One of the four boxed figures on a Truth in Lending disclosure.
Annual percentage rate (APR): The yearly cost of a loan including both interest and required fees, expressed as a percentage. Because it folds in origination fees, APR is the figure to compare between lenders; the interest rate alone is not. How fees change APR →
Application fee: A charge to apply for a loan before any decision. Legitimate personal-loan lenders do not charge one; a required upfront fee is the signature of an advance-fee scam. Loan scam warning signs →
Autopay discount: A rate reduction, typically 0.25–0.50 percentage points, for enrolling in automatic payments from a bank account. Offered by most national lenders and credit unions.

Balance transfer: Moving a credit-card balance to a new card, often at a 0% promotional APR for 12–21 months in exchange for a 3%–5% transfer fee. An alternative to a consolidation loan for balances you can clear within the promotion.
Bank-chartered lender: A lender that is itself a bank (national or state charter) rather than a licensed non-bank. Many online lenders issue loans through a partner bank named in the loan agreement.

Co-borrower (joint applicant): A second person who applies with you, shares ownership of the loan proceeds and is equally liable for repayment. Lenders price joint loans largely on the stronger credit profile.
Co-signer: A person who guarantees your loan without receiving the proceeds. Fully liable if you do not pay; the account appears on their credit report. Fewer personal-loan lenders accept co-signers than joint applicants.
Collateral: Property pledged to secure a loan: a vehicle title, a savings or CD balance, or other assets. The lender can take it on default. Most personal loans are unsecured; secured versions price lower. Secured loan options →
Credit-builder loan: A small loan whose proceeds are held in a locked account while you make payments, then released. Designed to create payment history for thin or damaged credit files.
Credit bureau: A company that compiles credit reports: Equifax, Experian and TransUnion are the three national bureaus. Lenders may pull one, two or all three.
Credit freeze: A free block on your credit file that prevents new accounts from being opened in your name until you lift it. Stronger than a fraud alert; recommended after any data exposure.
Credit mix: The variety of account types on your report (revolving cards, installment loans, mortgage). About 10% of a FICO score; adding an installment loan can help a cards-only file.
Credit score: A three-digit summary of credit risk calculated from a credit report. FICO 8 and VantageScore 4.0 are the most common models; both run from 300 to 850. Lenders set their own cut-offs. Rates by credit score →
Credit union: A member-owned, not-for-profit financial cooperative. Federal credit unions are capped at 18% APR on most loans and 28% on payday alternative loans, which makes them the cheapest approvals for fair credit.
Credit utilization: Credit-card balances divided by credit limits, in total and per card. About 30% of a FICO score. Under 30% is the usual target; under 10% is optimal. Has no memory: it recalculates each statement.

Daily simple interest: The accrual method used by nearly all personal loans: interest is calculated each day on the outstanding principal. Paying early or extra reduces interest immediately.
Debt consolidation: Replacing several debts, usually credit cards, with a single new loan at a lower rate and fixed term. Saves money when the new APR is well below the old ones and the term is not stretched excessively. Debt consolidation guide →
Debt management plan (DMP): A repayment program arranged by a nonprofit credit counseling agency in which creditors typically reduce card APRs to 6%–10%; you make one monthly payment to the agency. Cards are closed during the 3–5 year plan. Not a loan.
Debt-to-income ratio (DTI): Total monthly debt payments divided by gross monthly income. Most lenders want DTI under about 40%–45% after the new loan; the best pricing goes to borrowers under 36%.
Deferred interest: A promotional structure, common on medical and retail credit cards, in which no interest is charged if the balance is paid in full by the promotion end; otherwise interest is charged retroactively from the purchase date at the full APR. Medical financing guide →
Default: Failure to repay as agreed, usually declared after 90–180 days of missed payments. Leads to charge-off, collections, a seven-year credit-report entry and possible lawsuit; for secured loans, repossession of collateral.
Delinquency: A payment that is past due. Lenders report delinquencies to the bureaus at 30, 60 and 90 days; a 30-day late can cost a good score 50–100 points.
Direct pay (direct payment to creditors): A consolidation feature in which the lender sends loan proceeds straight to your card issuers rather than to you. Some lenders (Happen Bank, Upgrade) offer a rate discount for it.

Equal Credit Opportunity Act (ECOA): Federal law prohibiting credit discrimination on the basis of race, color, religion, national origin, sex, marital status, age or receipt of public assistance, and requiring adverse-action notices. Implemented by Regulation B.

Federal funds rate: The interest rate the Federal Reserve targets for overnight lending between banks; 3.75%–4.00% after the September 16, 2026 increase. Influences personal loan rates slowly and partially. What moves rates →
FICO score: The credit score developed by Fair Isaac Corporation, used in roughly 90% of US lending decisions. FICO 8 is the most common version for personal loans; bands run from poor (below 580) to exceptional (800–850).
Finance charge: The total dollar cost of credit over the life of the loan: all interest plus any fees that are a condition of the loan, such as an origination fee. One of the four boxed figures on a Truth in Lending disclosure.
Fixed rate: An interest rate that does not change for the life of the loan, so the monthly payment is constant. Nearly all personal loans are fixed-rate.
Fraud alert: A free one-year flag on your credit file asking lenders to verify your identity before opening new accounts. Weaker than a freeze; renewable.

Grace period: The number of days after a due date before a late fee is charged, typically 10–15 days for personal loans. Payments are still reported late to the bureaus only at 30 days past due.

Hard inquiry (hard pull): A credit check that appears on your report when you formally apply for credit. Visible to other lenders for two years, it affects your score (usually under five points) for up to twelve months.
HELOC (home equity line of credit): A revolving, variable-rate credit line secured by your home. Average rate 7.36% in October 2026 versus about 12% for personal loans; cheaper for large projects, but your house is collateral and closing takes weeks. Loan vs. HELOC →

Installment loan: A loan repaid in a fixed number of scheduled payments. Personal loans, auto loans and mortgages are installment loans; credit cards and HELOCs are revolving credit.
Interest rate: The yearly percentage charged on the principal, excluding fees. Always equal to or lower than the APR; a lender quoting only the interest rate is leaving out the fee.

Late fee: A charge for paying after the grace period, typically $15–$40 or 5% of the payment. Separate from, and in addition to, the credit-report consequences of a 30-day late. All fees defined →

Marketplace (loan marketplace): A website that collects one application and returns offers from several lenders. Useful for comparison; the marketplace itself is not the lender, and compensation from lenders may affect which offers it shows first.
Minimum credit score: The lowest score a lender will consider. Published minimums range from none (Upstart) and about 550 (Avant) to 660+ (banks and prime lenders); many lenders do not publish one. Lender reviews →

NMLS Consumer Access: A free public database (nmlsconsumeraccess.org) of state-licensed non-bank lenders and their license history, run by the Conference of State Bank Supervisors. The first place to verify an unfamiliar lender. How to verify a lender →

Origination fee: A one-time fee, typically 1%–10% (up to 12%) of the loan, deducted from proceeds at funding. Included in the APR. Charged by most online lenders; rare at banks and credit unions. Origination fees explained →

Payday alternative loan (PAL): A small loan from a federal credit union designed to replace payday loans: $200–$1,000 (PAL I) or up to $2,000 (PAL II), 1–12 months, APR capped at 28%, application fee capped at $20, no rollovers. Emergency loan options →
Payday loan: A short-term loan, usually due on your next payday, with a fee of about $10–$30 per $100 borrowed. The typical $15 per $100 for two weeks is a 391% APR. Rollovers are the norm.
Pre-approval: Often used interchangeably with pre-qualification; at some lenders it means a firmer offer after more data. Neither is a final approval, which comes after verification.
Pre-qualification: A preliminary rate estimate based on self-reported information and a soft credit inquiry. Does not affect your score; the fastest way to compare real offers from several lenders. How to pre-qualify →
Prepayment penalty: A fee for paying off a loan early. Essentially extinct among national personal-loan lenders; check the "Prepayment" line of the Truth in Lending disclosure.
Prime rate: The benchmark rate banks charge their most creditworthy customers, roughly 3 points above the federal funds rate; 7.00% since September 2026. Variable-rate products like cards and HELOCs are priced off it.
Principal: The amount borrowed, or the amount still owed excluding interest. Each payment reduces it; interest is charged only on the remaining principal.
Promissory note: The contract you sign agreeing to repay the loan on the stated terms. Together with the Truth in Lending disclosure, it governs any later dispute.

Refinancing: Replacing an existing loan with a new one, usually to get a lower rate or payment. Personal loans can be refinanced like any other debt; the new lender pays off the old one.
Regulation Z: The rule implementing the Truth in Lending Act, including how APR is calculated and what must be disclosed before you sign. Administered by the CFPB.
Revolving credit: Credit you can borrow against repeatedly up to a limit, with a payment that varies with the balance: credit cards, HELOCs and personal lines of credit. Contrast with installment loans.

Secured loan: A loan backed by collateral the lender can take on default. Secured personal loans (vehicle- or savings-backed) typically price 2–6 points below unsecured offers and are easier to qualify for.
Soft inquiry (soft pull): A credit check that does not affect your score and is visible only to you: pre-qualification, your own report checks and pre-screened offers.

Term: The length of the repayment schedule, usually 24–84 months for personal loans. Longer terms lower the payment but raise the APR and total interest. Rates by term →
Total of payments: Amount financed plus finance charge: everything you will have paid when the loan is retired on schedule. One of the four boxed figures on a Truth in Lending disclosure; the single best number for comparing offers.
Truth in Lending Act (TILA) disclosure: The federally required statement, given before you sign, showing APR, finance charge, amount financed and total of payments, plus payment schedule, late-fee and prepayment terms. Reading the disclosure →

Unsecured loan: A loan with no collateral, approved on credit history and income alone. The default form of a personal loan.

Variable rate: An interest rate tied to an index such as prime, which can rise or fall during the loan. Rare for personal loans, standard for HELOCs and cards.
VantageScore: A credit-scoring model created jointly by the three bureaus, also on a 300–850 scale. Used by some lenders and most free score apps; can differ from FICO by tens of points for the same report.

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