Banking & Financial Systems © 2013
Chapter 8: Lending
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Copyright © Goodheart-Willcox Co., Inc. All rights reserved.
Banking & Financial Systems © 2013
Chapter 8: Lending
A mortgage loan in which the interest
rate may change over the life of the
loan.
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adjustable-rate mortgage
(ARM)
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Chapter 8: Lending
A way to calculate finance charges by
using the balance from the previous
month and subtracting payments
made during the current period.
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adjusted balance method
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Chapter 8: Lending
The actual annual interest rate paid
over the life of a loan.
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annual percentage rate (APR)
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Chapter 8: Lending
A way to calculate finance charges
by using the card's beginning daily
balance.
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average daily balance method
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Chapter 8: Lending
A legal procedure that enables
individuals or companies to eliminate
or repay some or all debt under
the guidance of federal bankruptcy
courts.
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bankruptcy
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Chapter 8: Lending
The maximum increase that can be
applied to a monthly loan payment,
or the maximum interest rate
increase when the rate is adjusted.
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cap
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Chapter 8: Lending
A loan applicant's ability to pay debts
as shown by cash flow.
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capacity
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Chapter 8: Lending
A loan applicant's money, property,
and other valuables.
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capital
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A loan applicant's honesty and
integrity as shown by how he or she
handles debt.
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character
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Chapter 8: Lending
A loan that must be paid in full on a
specific date.
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closed-end loan
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Chapter 8: Lending
Several fees that are applied when a
mortgage is signed.
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closing costs
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Chapter 8: Lending
A borrower's property that is pledged
to secure a loan.
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collateral
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A loan made when a company
borrows money.
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commercial loan
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Chapter 8: Lending
The overall environment in which a
loan will be given.
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conditions
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Chapter 8: Lending
A loan made when an individual
borrows money for his or her use.
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consumer loan
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Chapter 8: Lending
An individual who signs a loan along
with the borrower, taking on equal
liability for repayment.
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cosigner
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A company that gathers, analyzes,
and summarizes credit-related
information on consumers.
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credit bureau
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A measure of risk based on a
borrower's credit history.
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credit score
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An assessment of a borrower's ability
to repay a loan.
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creditworthiness
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Chapter 8: Lending
A comparison of debt to income or
assets, the most common of which
are the debt-to-income ratio, the
debt-service-coverage ratio, and the
loan-to-value ratio.
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debt ratio
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Chapter 8: Lending
Occurs when a borrower fails to meet
the terms of a loan agreement.
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default
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Chapter 8: Lending
The difference between real estate's
value and the amount owed for the
real estate; equity belongs to the
owner.
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equity
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Chapter 8: Lending
A loan that temporarily transfers cash
to the borrower and is secured by the
owner's equity; sometimes referred
to as a second mortgage.
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equity loan
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Chapter 8: Lending
An independent federal agency established in 1934
to assist US businesses by financing the export of US
Export-Import Bank of the
United States (Ex-Im Bank)
products, supporting US companies engaged in the
overseas export of goods and services, offering loans to US
companies, providing guarantees that creditworthy foreign
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buyers will pay, and offering insurance on exported goods.
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Chapter 8: Lending
Part of the US Department of
Agriculture that provides financial
and logistical support to commercial
farms, often in the form of loans or
guarantees.
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Farm Service Agency (FSA)
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Chapter 8: Lending
A credit rating used by lenders to
predict an applicant's ability and
willingness to repay loans.
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FICO score
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Chapter 8: Lending
A mortgage loan in which the interest
rate stays the same for the entirety of
the loan's term.
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fixed-rate mortgage
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Chapter 8: Lending
An organization that is chartered
and supported by the government to
promote a public interest.
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government-sponsored
enterprise (GSE)
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Chapter 8: Lending
A type of closed-ended loan for a
large amount of money that is repaid
in smaller amounts over a specified
period of time.
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installment loan
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Chapter 8: Lending
Money temporarily transferred to a
borrower in exchange for repayment
and interest.
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loan
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A guideline for balancing risk.
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loan policy
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Chapter 8: Lending
Bonds that are guaranteed by the US
government.
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mortgage-backed securities
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A secured loan made to purchase
real estate; typically known as a
mortgage.
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mortgage loan
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A loan's annual interest rate without
the cost of fees or compound interest.
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nominal annual rate
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A loan that does not have to be paid
in full by a specific date.
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open-ended loan
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The interest rate the lender applies
to a loan's outstanding balance to
calculate the finance charge each
billing period.
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periodic interest rate
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Chapter 8: Lending
A way to calculate finance charges by
using the amount the customer owed
at the end of the previous billing
period to calculate the interest owed
for the current month.
- FOLD -
previous balance method
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An initial amount of money that is
loaned or deposited.
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principal
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Chapter 8: Lending
A section of land, the air above it, the
ground itself, and any buildings on
that land.
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real estate
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The process of creating a repayment
plan to repay debts without
liquidating property.
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reorganization
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The chance that an unfavorable event
will happen to a person or property.
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risk
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A loan backed by the borrower's
property.
- FOLD -
secured loan
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A loan that is not backed by
collateral, only the borrower's
signature.
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signature loan
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Chapter 8: Lending
An independent agency of the federal
government that was created in
1953 to help Americans start and
grow businesses, often in the form of
loans.
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Small Business Administration
(SBA)
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Chapter 8: Lending
A loan with fees and interest rates
that are higher than the rates given
to a person who meets all of the
underwriting criteria.
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subprime loan
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The number of years a loan will exist.
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term
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When lenders analyze risks and set
conditions on the loan.
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underwriting
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A loan that is not backed by
collateral, only the borrower's
signature; also called a signature
loan.
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unsecured loan
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Chapter 8: Lending
A group of international organizations
whose mission is to ease poverty
around the world by giving loans and
grants to developing countries.
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World Bank Group (WBG)
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