When it comes to personal loans, there are a lot of terminologies that might be unfamiliar to you. Understanding the terminology associated with personal loans is important before you apply for one. This guide is designed to help beginners understand the most commonly used personal loan terms.
Annual Percentage Rate (APR)
The APR is the annual rate that you pay on your loan, including all fees and interest rates.
Collateral
Collateral is something you pledge to the lender to secure the loan. It could be anything of value like your car, home, or other assets.
Credit Score
A credit score is a number that represents your creditworthiness. A higher score indicates that you are a less risky borrower.
Debt-to-Income Ratio (DTI)
Your DTI ratio is the amount of debt you have compared to your income. It helps lenders determine your ability to repay the loan.
Fixed and Variable Interest Rates
A fixed interest rate remains the same throughout the loan term, while a variable interest rate can change based on market conditions.
Loan Term
The loan term is the period of time in which you have to repay the loan.
Summary
Understanding the terminology associated with personal loans can help you make better-informed decisions when it comes to borrowing money. Before you apply for a personal loan, be sure to research and understand these terms to ensure you get the best possible deal.
In this beginner's guide to personal loan terminology, we covered some of the most commonly used terms associated with personal loans such as Annual Percentage Rate (APR), Collateral, Credit Score, Debt-to-Income Ratio (DTI), Fixed and Variable Interest Rates and Loan Term.
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Updated March 20, 2023