Common Terms Used in the Money Lending World
Annual Percentage Rate (APR):
The cost of credit expressed as an annual rate.
An acronym for Automated Clearing House. ACH payments are payments that are automatically debited from your bank account. You’ll need to provide authorization in order for any institution to take ACH payments from your account.
A term that is often used to describe a track record of late or missed payments. A borrower’s failure to keep up with credit agreements/loan payments signals to a lender that the borrower may have a hard time paying off future loans, which may make it more difficult for the borrower to be approved for credit in the future.
The interval between the days or dates of regular periodic statements.
A business day includes every official working day of the week. Public holidays and weekends (for many businesses) are not considered business days.
Credit Access Business (CAB):
A licensed CAB is not a lender, but they help the customer obtain a loan from an unaffiliated third-party lender and guarantee the loan to the third-party lender on the customers’ behalf. A CAB earns money for providing these services. In Texas, MoneyKey is licensed as both a CAB and a Credit Services Organization (CSO).
Can refer to a variety of short-term personal loans from a lender. These loans typically have a simplified application, approval and funding process compared to traditional bank loans, but may also have higher interest Rates and/or fees. Examples of a cash advances include payday loans, installment loans and line of credit products. Cash advances are typically used by borrowers to cover urgent cash needs and should be used responsibly.
Cash Advance Fee:
In the context of MoneyKey, a fee that a consumer incurs each time they withdraw funds through their line of credit.
Security from the borrower used to help guarantee repayment of a loan to a lender. If a borrower stops making payments towards a loan, the lender can seize and sell the asset to recover the outstanding balance of the loan.
An arrangement between a borrower and lender that provides the borrower with access to funds from the lender and the borrower agrees to repay the amount borrowed at a future date, typically with interest and/or fees.
A company that collects and compiles information regarding consumers’ credit history. Typically, lenders will review the consumer’s credit report from the credit bureau to assess the consumer’s ability to repay debts.
Credit checks are a tool often used by direct lenders to assess a consumer’s creditworthiness as part of the loan approval process. Credit is checked by pulling information regarding a consumer’s Credit History from sources such as Credit Bureaus.
A record of a consumer’s payment behavior as demonstrated through historic data. Typically, Lenders obtain an understanding of a consumer’s Credit History by reviewing the consumer’s Credit Report to assess the consumer’s likelihood of repaying their debt(s).
The maximum amount of credit that a lender will extend to a consumer. In the context of MoneyKey’s products, this is the maximum amount the customer can withdraw from their line of credit.
A number that helps represent a consumer’s Credit History. Lenders use credit scores to evaluate a consumer’s creditworthiness to assess the potential risk of lending money to the consumer.
A record of a consumer’s credit history, including but not limited to a consumer’s bill payment history, amounts of past loans, current debt owed to lenders, and other financial information. A credit report may include information from a number of sources such as banks, credit card companies, collection agencies, and governments. Some lenders may use credit reports to decide whether to extend credit to a consumer and may use the information to determine what interest rate they will charge.
Credit Services Organization (CSO):
A licensed CSO is not a lender, but they help the customer obtain a loan from an unaffiliated third-party lender and guarantee the loan to the third-party lender on the customers’ behalf. A CSO earns money for providing these services. In Ohio, MoneyKey is licensed as a CSO. In Texas, MoneyKey is licensed as both a Credit Access Business (CAB) and a CSO.
Failure of a borrower to meet the legal obligations (or conditions) of a loan, including the failure to make timely payments.
The status of a borrower’s account when they are late in paying back their debt and/or is unable to make payments at all.
The movement of funds from one bank account directly to another bank account. Lenders will often provide funds to borrowers using direct deposit.
An entity that provides a loan directly to a borrower without any intermediaries or “middle men”. The borrower receives their loan directly from the lender, and the loan is to be paid back to that lender. Direct lenders are accessible online or in-store.
Daily Periodic Rate:
In the context of short-term lending, the daily periodic rate is the amount of interest and/or fees that is charged on a loan on any given day.
Refers to the date on which a loan contract takes effect. It can also refer to the date that a borrower receives funding for a loan.
The FICO Scale was created by the Fair Isaac Corporation, the first company to convert a person’s credit history into a number. The FICO Scale is a popular method of determining an individual’s creditworthiness by assigning them a credit score. The FICO Scale ranges from a low of 300 to a high of 850. The higher a credit score is on the FICO scale, the better the chances of getting a loan.
The cost of credit expressed as a dollar amount.
A term used to describe the state of an individual’s personal financial situation. There are many factors that may be indicative of an individual’s financial health, including the amount of savings, whether there is outstanding debt, and the proportion of income that is being spent on fixed or non-discretionary expenses.
The status of a borrower’s account when they have successfully adhered to the terms and conditions of their loan, including but not limited to repayment. Some lenders may consider only those accounts that have never been delinquent to be in good standing, while others may consider an account to be in good standing so long as any past delinquencies have been corrected (i.e. if a borrower is not currently behind on any payments).
An Installment Loan is a loan that is repaid through a series of scheduled, periodic installment payments spread out over time.
A scheduled payment on an Installment Loan. The dates and amounts of installment payments may be determined based on a variety of factors such as the duration of a loan, and the borrower’s pay frequency.
An amount charged by a lender for the use of the funds borrowed. Interest is typically calculated by multiplying an Interest Rate by the Principal amount of a loan.
Interest expressed as a percentage. Typically, interest rates are expressed in annualized terms.
The entity that extends credit to a borrower based on terms that both parties agree to as set out in a loan agreement.
Line of Credit (LOC):
An open-ended, revolving form of credit. This means that the borrower can borrow any amount from the lender up to their approved credit limit as long as they still have available credit in their account. The available credit can be withdrawn at once or over a period of time. If there is an outstanding balance on a LOC, the borrower will be responsible for making minimum payments. A LOC account will remain open even when there is a zero balance. This provides the convenience and flexibility of access to available credit without submitting a new loan application each time.
A sum of money that is borrowed from a Lender under the condition that it will be repaid, typically with interest and fees, following agreed upon terms set out in a loan agreement. A line of credit is a type of open-ended loan.
A legally-binding document which details the terms and conditions of a loan.
Loan Matching Service:
An organization that tries to match a borrower with a third-party lender based on information provided by the borrower in an application. These loan matching services often operate online.
The period between the effective date of a loan and the last scheduled payment date.
In the context of a line of credit, the minimum amount due in each billing cycle. A minimum payment typically consists of fees and interest accrued during the billing cycle – responsible lenders will often also include a required principal payment component. How the minimum payment will be calculated for a particular line of credit should be set out in the loan agreement between the borrower and the lender.
A lender that provides its services through the internet. Online lenders often offer small-dollar loans such as payday loans, installment loans and/or lines of credit to quickly and conveniently help customers alleviate the stress of an emergency expense or short-term financial challenge. Typically, the process involves completing an online loan application that, if approved, allows the applicant to gain access to the approved funds quickly.
Online Payday Loans:
Payday loans that are available online are referred to as online payday loans. Making payday loans available through the internet allows the borrower to obtain a loan without having to visit a physical store location and/or faxing an application to the lender.
A loan between a lender and a borrower with no fixed term-ending date. It is sometimes referred to as a revolving loan since a borrower can draw from it repeatedly up to their available credit limit. A line of credit is an example of an open-ended loan.
The unpaid balance on a debt.
Outstanding Principal Balance:
The amount of money a borrower owes on their debt, excluding any interest, fees, and/or other finance charges.
Payday loans are short-term loans that are intended to be repaid in full with the borrower’s next paycheck. This type of loan is typically for a relatively small amount of money, usually $1,000 or less, and is often used by consumers who need immediate access to money. Payday loans often come with a higher interest rate than longer-term loans.
A lender that offers payday loans.
A timetable defining the amount and timing of required payments under a loan agreement.
A loan intended for a consumer’s personal use. Though most personal loans are unsecured, if a borrower requests a large amount of funds, a lender may require the borrower to provide collateral to secure the loan.
Power of Attorney:
A legal document that gives another person the legal authority to act on a person’s behalf (often in a limited capacity).
The amount borrowed and the amount on which interest is typically calculated.
A payment toward the amount of principal owed.
In the context of a line of credit, a statement issued by a lender to a borrower containing details of all activity pertaining to an account for a billing cycle. The periodic statement will typically include information about the transactions, fees, and finance charges during the billing cycle.
References, in the context of the lending world, refer to individuals a lender or their agent may contact in order to obtain information about a borrower. MoneyKey obtains References and employer contact information from its borrowers and will only contact the references if MoneyKey is unable to reach the borrower after multiple attempts. As a policy, MoneyKey will never disclose the nature of the borrower’s business with MoneyKey to the borrower’s reference(s) or employer(s).
A consumer-first principle, aimed at helping borrowers make informed financial decisions. This is typically achieved by helping the consumer understand the financial risks of borrowing money and encouraging consumers to use loan products responsibly.
A credit product where a consumer can repeatedly access their available credit up to a certain approved limit as long as their account is open and any required minimum payments are made on time. Unlike closed-end credit products such as payday loans and installment loans, this type of credit does not have a fixed number of payments. The MoneyKey Line of Credit is a type of revolving credit.
A loan that requires a borrower to provide collateral to a lender as a condition of the loan. In the event that the borrower stops making payments, the lender can attempt to recover the amount owed by the borrower by making a claim against the collateral.
Secure Socket Layer (SSL):
A type of encryption that helps to ensure that all data transferred between web servers and browsers remain private and secure. SSL encryption is a standard security technology used by millions of websites to protect customer transactions online.
In the context of a periodic statement, this is the date on which the periodic statement is generated. Generally, the periodic statement will show activity for the most recent billing cycle, and any activity after the statement date will be shown on the next periodic statement.
A type of Secured Loan that requires a borrower to pledge an asset as collateral – the value of the collateral is typically the main consideration in determining the amount that the lender is willing to lend for this type of loan. The lender typically does not review the borrower’s credit rating for this type of loan. A car title loan is a common type of title loan.
Truth in Lending Act (TILA):
A federal law created to promote the informed use of credit by consumers. Amongst other things, TILA requires creditors to disclose terms and costs of credit to consumers in a clear, consistent manner to help consumers evaluate the costs associated with credit products.
A term used to refer to the population of consumers who do not have an account at a bank or other mainstream financial institution. A portion of the unbanked do not qualify for traditional products/services from mainstream financial institutions while others choose to remain unbanked because of the costs and paper work involved with banking through traditional financial institutions. The unbanked are likely to pay for products/services using cash or money orders. Where they require access to financial services/products, many of the unbanked will rely on alternative financial services such as check-cashing services which tend to charge high rates for their services.
A loan that is not secured by collateral. This means that the loan is approved on the basis of the borrower’s ability to repay. An unsecured loan is not guaranteed by any type of property, so the lender may be left with nothing if the borrower defaults. These loans pose a larger credit risk to the lender and therefore typically have higher interest rates than secured loans.