A brief list of some of the most common Debt terms.
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.
