Credit Bad Loans Glossary: Personal Loan Terms in Plain English

The first group covers the basics of how a personal loan is priced and repaid, starting with APR, amortization and the amount financed, the numbers that appear first on every loan disclosure.

Adverse action notice

A written notice a lender must send when it declines you or offers worse terms based on your credit. It lists the main reasons and the credit bureau used, and it gives you the right to a free copy of that report within 60 days.

Amortization

The process of paying a loan down through equal scheduled payments. Early payments are mostly interest and later ones mostly principal, so the balance falls faster toward the end of the term.

Amount financed

The credit you actually receive or that is paid on your behalf, after any fee taken out at closing. On a $3,000 loan with a $150 fee withheld, the amount financed is $2,850.

Annual percentage rate (APR)

The yearly cost of credit, including interest and most required fees, shown as a percentage. It is the best single number for comparing two loan offers of the same amount and term.

Autopay

An arrangement that drafts each payment from your bank account on the due date. Some lenders lower the APR slightly when you enroll, and it helps prevent late payments.

Balloon payment

A final payment much larger than the regular ones. Standard personal installment loans do not have balloon payments; if an offer includes one, read the terms closely.

Bank partner

A chartered bank that originates loans arranged by an online lending company. The bank's name should appear on the website and on the agreement you sign.

Bankruptcy

A court process that discharges or reorganizes debts. It stays on a credit report for seven to ten years, and most lenders decline applications while a case is open.

The C terms focus on your credit file and the people or property that can stand behind a loan, from credit scores and reports to co-signers and collateral.

Cash advance

Cash taken from a credit card's limit at an ATM or bank. It usually carries a fee of about 5%, a higher APR than purchases and no grace period, so interest starts the same day.

Charge-off

An account a lender has written off as a loss after months of missed payments. You still owe the debt, and the charge-off stays on your report for seven years.

Co-borrower

A second applicant who shares the loan equally, receives the funds with you and is equally responsible for repayment. Lenders usually price joint applications on both profiles.

Co-signer

A person who promises to repay if you do not, without receiving the money. A co-signer's good credit can improve approval and rate, but missed payments hurt their credit too.

Collateral

Property pledged to secure a loan, most often a paid-off vehicle for personal loans. If you default, the lender can take the collateral to recover what is owed.

Collections

When an unpaid debt is passed to an internal team or a separate agency for recovery. Collection accounts lower your score and remain on your report for up to seven years.

Credit union

A member-owned financial cooperative. Federal credit unions cap most loan APRs at 18% and offer small-dollar alternative loans up to 28% APR, which makes them worth checking before Credit Bad Loans from other sources.

Credit bureau

A company that collects credit histories and sells credit reports. The three national bureaus are Equifax, Experian and TransUnion.

Credit report

A record of your accounts, balances, payment history, inquiries and public records. You can get free reports from each bureau through the official annual credit report site.

Credit score

A three-digit number, usually 300 to 850, that summarizes credit risk from your report. FICO and VantageScore are the most common models, and lenders may use different versions.

Credit utilization

The share of your revolving credit limits you are using. Keeping card balances under about 30% of limits generally helps a score; under 10% helps more.

Terms in this group explain how lenders measure what you can afford and what happens when payments stop, along with the federal rules that govern credit reports and fees.

Debt consolidation

Combining several debts, often credit cards, into one new loan with a single payment. It saves money only if the new APR and fees are lower than what you pay now.

Debt management plan

A repayment plan arranged by a nonprofit credit counseling agency, which negotiates lower card rates and collects one monthly payment to pay your creditors. It usually closes the enrolled cards and takes three to five years.

Debt-to-income ratio (DTI)

Your monthly debt payments divided by gross monthly income. Many lenders want it under roughly 40% to 50%, including the new payment.

Default

Failing to repay as agreed, usually after several missed payments. Default can lead to collections, a charge-off and, for secured loans, loss of the collateral.

Direct deposit

An electronic transfer into your bank account. Most lenders send loan funds this way, and some look for regular direct deposits as proof of income.

Due date

The day each payment must reach the lender. Many lenders let you choose or change it so it falls shortly after your income arrives.

Fair Credit Reporting Act (FCRA)

The federal law that governs credit reports. It gives you the right to see your reports, dispute errors and receive notice when a report is used against you.

Finance charge

The total dollar cost of credit over the life of the loan, including interest and required fees. It appears on the Truth in Lending disclosure next to the APR.

Fixed rate

An interest rate that stays the same for the whole term, so the payment never changes. Almost all personal loans for fair and poor credit are fixed-rate.

The G to L terms cover the timing and mechanics of a loan, including grace periods, inquiries and late fees, plus the licenses that separate real lenders from imitators.

Grace period

A short window after the due date, often 10 to 15 days, before a late fee applies. A payment within the grace period is late but usually not reported to the bureaus.

Hard inquiry

A credit check made when you formally apply. It appears on your report for two years, can lower a score by a few points for a short time, and is visible to other lenders.

Installment loan

A loan repaid in a set number of equal payments. Personal loans, auto loans and mortgages are installment loans; credit cards are not.

Installment lenders

Companies that make loans repaid in fixed, scheduled payments, from national online lenders to local branch offices. Licensed installment lenders must give you a written disclosure before you sign.

Interest

The price of borrowing, charged as a percentage of the balance. On an amortizing loan, interest is calculated on the remaining principal each period.

Late fee

A charge for a payment received after the grace period, often a flat $15 to $30 or a percentage of the payment. State law limits the amount in many places.

Lender

The company or bank that provides the money and owns or services the loan. Matching sites, brokers and lead networks are not lenders.

License

State authorization to make consumer loans. You can look up a lender's licenses in the NMLS Consumer Access database or on your state regulator's site.

Loan term

The length of time you have to repay, stated in months. Longer terms lower the payment but raise the total interest paid.

The M to P group includes the federal protections for service members, the registries that track licensed lenders, and the fees and checks you meet before you sign a personal loan.

Matching service

A website that passes one loan request to several lenders or networks. It is not a lender and does not make credit decisions; our site works this way.

Military Lending Act (MLA)

A federal law that caps the military APR at 36% for covered active-duty members and their dependents and bans certain terms, such as requiring a vehicle title.

NMLS Consumer Access

A free public database of state-licensed lenders, brokers and loan companies. Searching it confirms whether a company holds a license in your state.

Origination fee

A one-time fee for processing a loan, often 1% to 10% of the amount. It is usually deducted from the funds you receive and included in the APR.

Payoff quote

A statement of the exact amount needed to close a loan on a specific date, including interest up to that day. Ask for one before paying a loan off early.

Personal loan

A loan for personal, family or household use, usually unsecured and repaid in fixed monthly installments. Credit Bad Loans is a common search term for personal loans offered to people with fair or poor credit.

Prepayment penalty

A fee for paying a loan off early. Most personal loans from licensed lenders have none, but you should check the agreement before signing.

Prequalification

A preliminary review, usually with a soft inquiry, that estimates whether you would be approved and at what rate. It is not a final offer and does not affect your score.

Principal

The amount you borrowed and still owe, not counting interest or fees. Each payment reduces principal by whatever is left after interest is covered.

The R and S terms describe how credit can be restructured or secured, how revolving accounts differ from loans, and which checks other lenders can and cannot see.

Refinance

Replacing an existing loan with a new one, ideally at a lower rate or with a better term. It can make sense after your score improves, as long as fees do not erase the savings.

Revolving credit

Credit you can borrow, repay and borrow again up to a limit, such as a credit card or line of credit. The balance and minimum payment change month to month.

Secured loan

A loan backed by collateral. Secured personal loans can carry lower rates or higher amounts, but you risk losing the collateral if you stop paying.

Soft inquiry

A credit check that does not affect your score and is not visible to other lenders. Prequalification, account reviews and checking your own report are soft inquiries.

Subprime

A label lenders use for borrowers with scores below roughly 620 to 670, depending on the model. Subprime loans carry higher rates to offset higher risk.

The final terms explain the disclosure every lender must give you, the review behind each decision and the difference between rates that stay fixed and rates that move.

Thin credit file

A credit report with few accounts or a short history. A thin file may produce no score at all, which some lenders treat differently from a low score.

Total of payments

The full amount you will have paid when the last payment is made, including principal, interest and financed fees. It is the clearest way to see the true cost of a loan.

Truth in Lending Act (TILA)

The federal law that requires lenders to disclose the APR, finance charge, amount financed and total of payments in a standard box before you sign.

Underwriting

The lender's review of your credit, income, debts and identity to decide whether to lend and on what terms. Automated underwriting can take seconds; manual reviews take longer.

Unsecured loan

A loan with no collateral, approved on your credit and income. Most personal loans and most Credit Bad Loans are unsecured.

Variable rate

An interest rate that can change with a market index, so the payment may rise or fall. Variable rates are rare on personal loans for fair and poor credit.