Glossary of Financial Terms

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A plan offered by a corporation to its employees that sets aside tax-deferred money for retirement.


A plan offered by a non–profit or university to its employees that sets aside tax-deferred money for retirement.

457 Plans

A plan slightly different from a 401(k) in that it is offered to state and governmental employees; employer matches are never made.

Adjustable Rate

A loan in which the interest rate can change during the term of the loan; opposite of fixed rate and also called variable rate.

Annual Percentage Rate (APR)

The yearly cost of a credit, including interest, mortgage insurance, and the origination fee (points), expressed as a percentage.


An insurance industry investment product. These contracts between an individual and an insurance contract are set up so that the individual deposits a sum of money with the insurance company, which then makes monthly payments to the individual.


A resource with an economic value that an individual or corporation owns, with the expectation that it will provide future benefit.


Publicly traded corporation that is chartered by the state or federal government and offers checking/savings accounts as well as loans.


The condition of being financially insolvent (unable to pay debts owed); the administration of an insolvent debtor’s property by the court for the benefit of the debtor’s creditors. Common types of bankruptcy include:

·      Chapter 7: A liquidation proceeding, available to individuals, married couples, partnerships, and corporations.

·      Chapter 13: A repayment plan for individuals with debts falling below statutory levels which provides for repayment of some or all of the debts out of future income over three to five years.


A “loan” that an investor gives to a corporation or the government for a specific time period with a fixed or variable rate of return.

Buy-Here, Pay-Here

Auto dealer financing for high-risk applicants.


Money or property that’s used to generate wealth. Examples of capital include automobiles, patents, software, and brand names.

Certificate of Deposit (CD)

A deposit account that pays a higher interest rate than a savings account.


Assets pledged by a borrower to secure a loan or other credit, and subject to seizure in the event of default. Also called “security.”

Commercial Credit

A bank loan to a business.

Compound Interest

Interest paid on both the principal and the accrued interest.

Consumer Credit

A loan from a bank, credit union, or finance company to an individual.


An individual other than the borrower who signs a promissory note and thereby assumes equal liability for it.


A customer’s ability to obtain goods or services before payment, based on the trust that payment will be made in the future.

Credit Bureau

Agency that collects and sells information about the creditworthiness of individuals; also called a credit-reporting agency.

Credit Counseling Agency

An agency that offers education, counseling, and budget analysis to consumers.

Credit Repair Organizations Act

A federal law that regulates credit repair businesses.

Credit Rating

An estimate of an individual’s or organization’s ability to fulfill financial commitments, often based on previous dealings.

Credit Report

A report containing detailed information on a person's credit history, including identifying information, credit accounts and loans, bankruptcies and late payments, and recent inquiries. Prospective lenders can obtain a credit score with the borrower's permission to determine his or her creditworthiness. Individuals can also obtain their own credit scores.

Credit Reporting Agency

Agency that collects and sells information about the creditworthiness of individuals; also called credit bureau.

Credit Score

A number assigned to an individual, indicating to lenders the person’s capacity to repay a loan.

Credit Scoring

A statistical technique used to determine whether or not to extend credit to a borrower.

Credit Union

Non–profit financial institution that offers its members checking/savings accounts as well as loans.


A person or organization that extends credit to others; also called a lender.


A liability or obligation in the form of a loan, owed by one person to another person and required to be paid by a specified date.

Debt Consolidation

A loan, usually secured with the equity in a home, used to pay off other higher-interest debts, resulting in one monthly payment.

Debt Management Program (DMP)

A program where an agency works with a debtor and the debtor’s creditors to come up with a repayment plan. The agency receives payment from the debtor and then distributes the money to the creditors. Creditors will occasionally make concessions, such as a reduced interest rate, waiving of fees or re–aging of accounts.

Debt Negotiation

An agency negotiates with creditors on a debtor’s behalf to reduce the amount of money owed. The agency usually retains a monthly fee, percentage of the money saved, or both. The money saved in such a program can be considered taxable income by the IRS. Also called a debt settlement.

Debt Settlement

An agency negotiates with creditors on a debtor’s behalf to reduce the amount of money owed. The agency usually retains a monthly fee, percentage of the money saved, or both. The money saved in such a program can be considered taxable income by the IRS. Also called a debt negotiation.


An individual who signs a promissory note and assumes liability to repay under the terms of that note; also called a borrower.


Failure to make a contractual payment on time.

Disability Insurance

An insurance that will supplements an individual’s income should he or she become unable to work.

Equal Credit Opportunity Act

A federal law prohibiting lenders from discriminating on the basis of the borrower’s race, color, national origin, religion, age, sex, marital status, or public assistance program participation.


An outflow of money to another person or group to pay for an item or service, or for a category of costs; also called an expenditure.

Fair and Accurate Credit Transactions Act

A federal law that, in part, seeks to reduce identity theft and assist victims in recovering from fraud.

Fair Credit Reporting Act

A federal law designed to promote accuracy and ensure the privacy of the information used in a credit report.

Federal Trade Commission (FTC)

A government agency that has oversight for the FCRA, ECOA, and FACT Act, as well as other credit-related regulations.


Fair Isaac Corporation; the inventor of credit scoring models.

Finance Company

A company that offers loans to individuals.

Fixed Rate

A loan in which the interest rate does not change during the entire term of the loan; opposite of an adjustable rate loan.

Government Bond

A bond issued by the US Treasury.

Health Insurance

An insurance policy to cover against health claims. There are various types such as HMO, PPO & HSA.

Health Savings Accounts (HSA)

A savings account with tax benefits that can be used for paying medical expenses.

Homeowners Insurance

Insurance that covers the value of real estate. Most mortgage companies require that individuals insure the value of the home to cover against loss while a mortgage is in place.


Money that an individual or business receives in exchange for providing a good or service or through investing capital.

Individual Retirement Accounts (IRA)

An account that allow an individual to personally save for retirement.

Installment Loans

A loan that is repaid with a fixed number of periodic, equal–sized payments.


A fee paid by a borrower to an owner as a form of compensation for the use of the assets. It’s most commonly the price paid for the use of borrowed money, or money earned by deposited funds.


An asset or item that is purchased with the hope that it will generate income or become more valuable in the future. In an economic sense, an investment is the purchase of goods that are not consumed today but are used in the future to create wealth.


A type of retirement account for self-employed individuals.


A person or organization that extends credit to others; also called a creditor.


Something an individual owes; a responsibility or debt. Examples include student loans, credit card balances, and medical bills.

Life Insurance

An insurance policy to cover against loss of life. There are various types of polices such as term and permanent insurance.

Money Market Account

A type of savings account that pays higher interest rates but requires a minimum balance and restricts the number of withdrawals.


Security agreement in which a house is pledged for a loan.

Mutual Funds

A fund in which people pool together their monies to invest together. Typically professionally managed and management fees are charged.


Largest over-the-counter exchange.

Net Worth

An individual’s or organization’s personal wealth as calculated by the difference between assets and liabilities.

Non-Wealth Creating Asset

A good that isn’t expected to earn money or rise in value. Examples include cars, computer, clothes, etc.


New York Stock Exchange is the largest equity exchange in the world.

Over the Counter (OTC)

The NASDAQ stock exchange is an example of an OTC exchange. Most stocks in the US are traded on the OTC.


Lends money and holds some of the borrower’s personal goods as collateral.

Payday Loan

Short-term loans with high interest rates.

Pension Plan

An employee retirement plan set by an employer.

Personal Liability Umbrella Insurance

An insurance policy to cover in excess of homeowner or auto insurance policies. Typically used to raise coverage to higher limits.


The original investment; the amount borrowed or the amount borrowed that remains unpaid.

Promissory Note

A document signed by a borrower promising to repay a loan under agreed–upon terms.

Pro Bono

Work done for the public good, without compensation.

Qualified Retirement Plan

Employer sponsored, tax–deferred retirement plans that employees can contribute to.


Bringing an individual’s account current. Bank guidelines vary on their re–aging process (e.g., some re–age once in a one-year month period; some once in a five–year period).

Real Estate

Physical property owned for the purpose of ownership or investment, including rental property, personal property, or business property.

Renters Insurance

An insurance policy that renters can take out to cover the value of their personal belongings while renting a home or apartment.

Retirement Accounts

A wide variety of investments designed specifically for the retirement years.


The total increase or decrease of an investment.

Revolving Credit

An agreement by a bank to lend a specific amount to a borrower, and to allow that amount to be borrowed again once it has been repaid.

Roth IRA

An IRA that an individual deposits after tax dollars are taken out.

Savings Account

A deposit account that pays interest and allows for unlimited deposits and withdrawals.

Secured Loan

Backed by a pledge of collateral; opposite of unsecured loan.


Assets pledged by a borrower to secure a loan; also called collateral.

Security Agreement

Loan document pledging asset for a loan.

Simple Interest

A percentage earned on the original investment only; the annual rate that is charged for borrowing (or made by investing). This includes any fees or additional costs associated with the transaction.

Simplified Employee Pension (SEP)

A plan for self–employed individuals (and their employees, if numbering fewer than 25.

Social Security Tax

A tax withheld from an individual’s pay to fund the Social Security Retirement System. Those who are self–employed contribute the full percentage; those who are employed contribute half, with the employer contributing the other half.


A portion of the ownership of a corporation. A share in a corporation gives the owner of the stock a stake in the company and its profits.

Truth in Lending

A federal law requiring lenders to fully disclose in writing the terms and conditions of a mortgage, including the annual percentage rate and other charges. Also called Regulation Z.

U.S. Savings Bonds

Bonds issued by the United States government—backed not by collateral, but only by the integrity of the borrower.

Variable Rate Loan

A loan in which the interest rate can change during the term of the loan; opposite of fixed-rate loan, and also called adjustable rate loan.

Wealth-Creating Asset

Increases in value or provides a return; examples include savings accounts, stocks, bonds, etc.


A legal document that states an individual’s wishes for deposition of his or her belonging upon death.


The rate of return on an investment.

Zero-Coupon Bond

Bonds that pay interest only upon their maturity.