Bankruptcy -
Having been legally declared financially insolvent. There are two types of
bankruptcy - liquidation, in which your debts are cleared (discharged) and
reorganization, in which you provide the court with a plan for how you intend to
repay your debts.
Collateral - Property acceptable as
security for a loan or other obligation.
Collection
Agency - A company hired by a creditor to collect a debt that it is
owed.
Contract - An agreement between two or more
parties, usually written down and enforceable by law
.
Cosigner - To endorse (another's signature), as a loan
agreement, lease or credit application. If the primary debtor does not pay, the
cosigner is fully responsible for the loan or debt.
Credit
Bureau - An organization to which business firms apply for credit
information on prospective customers.
Credit Report -An
account of your credit history, prepared by a credit bureau. A credit report
will contain credit history, such as what you owe to whom and whether you make
the payments on time, as well as personal history, such as your former
addresses, employment record and any lawsuits in which you have been involved.
Creditor - A person or entity (such as a bank) to whom
a debt is owed.
Debtor - A person or entity (such as a
bank) who owes money.
Debt to Income Ratio - Most
mortgage lenders use this ratio to analyze your financial well-being. It is
figured by using your monthly debt divided by your monthly income. The lower the
percentage the better your financial picture. This is often referred to as
credit worthiness.
Default - To fail to pay money when
it is due. A default on a mortgage or loan takes place when you fail to make the
loan payments on time, fail to maintain adequate insurance or violate some other
provision of your agreement with the mortgage / loan
company.
Discharge (of debts) - A court's writing of off
the debts of a person or business that has filed for
bankruptcy.
Dischargeable Debts - Debts that can be
erased by going through bankruptcy.
Down Payment - A
cash payment made by a buyer when they purchase a
property.
Equity - An increase in the value of your home
or decrease in the loan amount on your home creates equity. Equity is the
difference between what is owed on your home and the sale value. Most home
equity lenders will allow you to borrow up to 80% of that
value.
Fair Isaac and Company - Fair Isaac is the
company responsible for creating the popular FICO score. This three digit score
is created using information from your credit report and ranges from
300-850.
Foreclosure - The forced sale of property to
pay off a loan on which the owner of the property has
defaulted.
Garnishment - A court order directing a third
party who holds money or property belonging to a defendant to withhold it and
appear in court to answer inquiries.
Grace Period - A
period of time during which you are not required to make payments on a
debt.
Guarantor - A person who makes a legally binding
promise to either pay another person's debt or perform another person's duty if
that person defaults or fails to perform.
Interest - A
commission you pay a bank or other creditor for lending you money or extending
you credit. Usually calculated as a percentage of the mortgage or loan.
Lien - The right to take and hold or sell the property
of a debtor as security or payment for a debt or duty.
Loan
Consolidation - The combining of a number of loans into a single new
loan. Usually done to gain more favourable terms e.g. lower cost repayments or
longer time to pay.
Principal - A sum of money owed as
a debt, upon which interest is calculated. If you purchased an item for $100 on
your credit card that would be the principal
balance.
Repossession - A creditor's taking of property
that has been pledged as collateral for a loan.
Secured
Debt - A debt on which a creditor has a lien. A car loan would be an
example of secured debt.
Term - The time required to
repay a loan.
Unsecured Debt - A debt that is not tied
to any item of property. Credit card debt is an example of unsecured
debt.
About the
Author
1st Finance Guide features help and advice on debt consolidation amongst
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