Getting the Hang of Loan Lingo

Whenever I go loan shopping I find myself unable to deal with the tons of jargon flung at me. We notice terms like "Agreement in Principle" and "Adjustable Rate Mortgages" to "Credit History" and "Equity Release". No matter how you look at it, getting a loan is like getting a whole new education. If you believe that you have a definite flair for the English language, just try asking a mortgage salesman for loan advice. By the time his advice-giving session is completed, you might just come home feeling like you have been hit by a dictionary of financial jargon.

However, it really is not all that difficult when you make an attempt at understanding the ABCs. For instance, "Agreement in Principle" is simply one more mind-numbing term talking about the agreement that is made between the lender and the borrower regarding the amount that is to be lent. To a large extent, this amount would be affected by aspects like your credit history, the collateral that you are offering, and your current income among other things.

Are you already feeling a little astounded by all this jargon? Read ahead for some English translations of financial jargon. Credit history refers to whether or not you have repaid loans that you had taken earlier. If you have been a defaulter on a previous loan, you have a bad credit history. If you have not defaulted, you will be said to have a good credit history. At this point, keep in mind the thought that a bad credit history will haunt you for the rest of your life when it comes to getting loans.

"Collateral" refers to the asset (usually property) that you use as security to avail of a secured loan. An unsecured loan requires no such collateral. If you haven't yet purchased any property, but are wanting to buy some, you will see all kinds of mortgage terminology like "Adjustable Rate Mortgages". This is very distinct from "Fixed Rate Mortgages" where the interest rate is fixed no matter how the market reacts. In an adjustable rate mortgage, the rate may vary in accordance with the market conditions. These days, one can easily sniff out mortgages that have a combination of fixed and adjustable rates.

If you already own a house, but are paying mortgage on it, "Equity Release" might be just your thing. Equity means the difference between the value of your home and the mortgage amount that still remains due. Free this equity by means of an equity loan to finance other expenses.

You would benefit if you familiarized yourself with some financial jargon before you started loan shopping. Loan seekers who are acquainted with the concepts will not find themselves at sea.

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