What Language Is This?
Some money terms sound like a foreign language! PMI? Escrow? FICO score? Many financial terms are used every day and if you don’t know them – you are not alone! In my life as an IT Business Analyst, I have worked many times with the accounting and finance departments, so I picked up some on the job knowledge. But the first time I bought a house, I felt like a dummy!
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Understanding the meaning of common financial terms is something even young children can start to learn. #FinancialTerms Share on XCommon Financial Terms
Since we all need to take control of our finances and budgets, these are terms we may come across in the process, so I hope they will be a benefit to you.
Amortization
The repayment time period of a loan or debt / the number of years over which you’ll repay the loan or debt.
Annual Fee
A fee some credit cards charge for the use of their cards.
Annual Percentage Rate (APR)
An annual rate charged for borrowing or earned through an investment.
Arrears
The past due amount owing.
Assets
Things you own, even if you owe against them. This can include cash, checking accounts, your automobile, your home, and many others.
ATM
The automated teller machine is a computer terminal that lets you deposit, transfer money or withdraw money from your account(s). It is secured by a coded bank card and your account password.
Borrower
A person who takes on a loan or other debt.
Bounced Check
A check returned (not honored) because of insufficient funds. You don’t have enough money in your account to cover the check.
Budget
A budget is basically a spending plan. It shows all your income, expenses and planning for future spending (emergency fund or possible maintenance).
Check
A document ordering your bank to pay out the specified amount from your checking account.
Checking Account
An account that allows you to write checks or make ATM withdraws from the money in your account.
Co-Borrower
A secondary person on a loan or other debt that is 100% responsible for the repayment. A co-borrower’s income and credit are used to qualify for the loan.
Collateral
An asset that is used to cover (secure) a loan. If the loan is not paid, the lender can take the collateral. Your car loan usually has your car as the collateral and your home as collateral for your mortgage.
Credit
The purchase of goods or services now with the promise to pay later.
Creditor
Someone you owe money to.
Debt Consolidation Loan
A loan used to pay other loans.
Debit Card
A card issued by your bank that you can use for purchases and the money is taken from your checking account.
Direct Deposit
A secure way to have your paycheck deposited into your checking or savings account. You don’t get a physical check, but have access to viewing your check or receiving a paper check stub.
Earnest Money
This is a deposit made to a seller indicating the buyer’s good faith in an arrangement. Earnest money is typically held jointly by the seller and buyer in a trust or escrow account and the amount is deducted from the selling price.
eFiling
Processing your income tax return electronically instead of on paper.
Endorse
Signing the back of a check so you can get cash for it or deposit to your account.
Escrow
Something of value, usually money, that is held by a third-party until a transaction is complete. When you purchase a home, your earnest money (money put down when you make an offer) is held by an escrow company until the sale is complete. If you own a home, part of your mortgage payment may go into the mortgage company’s escrow account each month and held until your tax or insurance is due. Then the mortgage company uses the money in the escrow account to pay the insurance or taxes.
Emergency Fund
A small cushion of savings to help you stay afloat in case of a financial crisis. This could be new car tires or losing your job. Experts disagree on the amount, but it is suggested to be 3 or 4 months of your salary.
Equity
The difference between the value of a property (what it could be sold for) and the debt against it.
Expenses
Things you pay for.
Finance Charge
Any fee charged for borrowing money
Foreclosure
Foreclosure is the forced sale of a property that is in default (not paid).
Fixed Expenses
Things you pay for such as mortgage or rent, car insurance and car payments that are fixed expenses because the payment usually does not vary from one month to another.
FICO score
A score that is used to predict how likely you are to pay back a loan on time. Credit scores are used by companies to make decisions such as whether to offer you a mortgage or a credit card and what your interest rate will be.
Garnishment
A legal order to withhold money from your pay to pay on your debts.
Gross Income
Your pay amount before taxes and deductions.
Grace Period
The time allowed for payment of a debt or loan without penalty.
Insufficient Funds
When a bank account does not have enough to cover a check.
Interest
The price you pay to borrow money.
Interest Rate
The cost of borrowing money, expressed as a percentage.
Layaway
Paying for something in installments and the goods are held until paid in full.
Lease
A contract for the use of something for a period of time for a rental rate.
Liabilities
Liabilities are things you owe on like bank loans, mortgage debt, and credit card balances.
Loan
A sum of money lent at a specific interest rate.
Minimum Payment
Minimum payment is amount that must be paid on a credit card.
Mortgage
A loan made for real estate. The term is anywhere from 10-30 years with a down payment of 5% – 25% or more.
Net Income
Your amount of pay after taxes.
Net Worth
Net worth is the difference between your assets and liabilities. Assets – Liabilities = Net Worth.
Online Banking
Doing bank transactions over the internet.
Principal
The amount you have borrowed.
Private Mortgage Insurance (PMI)
Basically a type of insurance you pay the mortgage company if you do not have at least 20% to pay down on a mortgage. The PMI amount is added to your mortgage each month. This protects the mortgage company in case the borrower does not pay. Some loans drop PMI when you have paid an amount equal to 20% value of your home.
Repossession
To take back possession of collateral for failure to pay as agreed.
Safe Deposit Box
A location usually inside a bank used to store valuables.
Term
The number of months for a period of a loan.
Variable Expenses
Expenses that can vary in amounts such as utilities, groceries or entertainment.
Withholding
An amount that employers withhold from an employee’s paycheck and send to local and federal taxing authorities on behalf of the employee.
I hope you learned something here you didn’t already know. If you have ones that should be on the list, let me know and I will add them!
Creating and using a budget is so important at any stage of life. Budgeting should not be so scary and knowledge is power!
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Nice post i am in marketing for 5 years and some frases i never understand . Now its more clear to me Thank you.
Thanks!!
So much great information here. Thank you for sharing, Janet!
Thank you Heather!