Debt glossary

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Debt Terms[edit]

General Debt Words[edit]

alternative fInancial services (AFS)[edit]

financial services offered by providers that are not banks; such services include check-cashing outlets, money transmitters, car title lenders, payday loan stores, pawnshops, and rent-to-own stores.


a response to a formal legal complaint. For more, see if a collector sues you

annual percentage rate/APR[edit]

a measure of interest rates (actually it also includes some fees) on an annual basis. How APR is measured is heavily regulated, since creditors try to make their prices look lower through techniques like dropping the interest rate and jacking up fees. The higher the APR, the more you'll pay over the life of the loan. This differs from a loan's interest rate, which does not include fees charged for the loan.


a privately judicial process that operates outside the court system. Many creditors (and other corporations) now include clauses in their contracts/promissory notes that require all disputes to be resolved by arbitration. That means you can't sue them in real court. And it usually means you can't file a class action.


the process of gradually paying off your loan. In an amortizing loan, for each of your monthly payments, a portion is applied towards the amount of the loan - the principal - and a portion of the payment is applied towards paying the interest. A greater percentage of your monthly payment is applied to interest early in the life of the loan, and a greater percentage is applied to the principal at the end. The principal balance decreases slowly at first and more quickly closer to the end of the loan term.


amount that a debtor owed in the past but hasn't paid. "backpay"


any possession with value.


an assignee is a person or a company who buys your loan. For example, an lender may sell your loan to a bank, making the bank the assignee. You owe the money to whoever has purchased your loan.

automatic stay[edit]

an order from a bankruptcy judge that stops all creditors from collecting on somebody who has filed bankruptcy.


the legal process by which a debtor who cannot pay all of their debts arranges to have them discharged and/or consolidated. For more see bankruptcy

bankruptcy trustee[edit]

an official appointed by a bankruptcy court to manage the assets of a debtor going through bankruptcy. For more see the bankruptcy process

borrower defense[edit]

see defense to repayment

bounced check[edit]

a check that is written on a checking account, submitted for payment, and returned because the account does not have enough funds to cover the amount of the check.

cooling-off period[edit]

an interval of time during which no action of a specific type can be taken.


an asset (anything worth money) that a debtor pledges to give to a creditor if they stop paying a loan. Also called "security" for a loan. offered by a borrower as a guarantee of payment on a loan. Also, a borrower's savings, investments, or the value of the asset purchased that can be seized if the borrower fails to repay a debt.


the document that announces a lawsuit. If a creditor (or collector) sues you, you will get a complaint in the mail. If you sue a creditor (or collector), you have to send a complaint to the court and to the creditor. For more, see if a collector sues you and if a collector violates the law.


taking out a loan to pay off other loans. Consolidation can be done to change interest rates and/or to turn multiple loans into a single loan. When it's just done to change interest rates (one loan is consolidated into another with a lower interest rate) rather than to turn multiple loans into a single loan, it's often called "refinancing". For consolidation in federal student loans, see consolidation of federal loans

consumer financial protection bureau (CFPB)[edit]

an independent government agency responsible for consumer protection in financial businesses including banks, credit unions, securities firms, payday lenders, mortgage-servicing operations, foreclosure relief services, debt collectors, and other financial companies operating in the United States.

credit score[edit]

a number based on information in a credit report that indicates how likely someone is to pay back a loan, and may determine what types of loans they can get, and what interest rate will be charged. See also FICO

credit card[edit]

a payment card that, when used, fronts you the money. For more, see debit, credit, and prepaid cards

credit limit[edit]

the amount that a lender that offers a line of credit (usually in the form of a credit card) will allow you to borrow. For more, see how credit cards work


any person or company that lends money. Banks, financial companies, credit card issuers, retail stores with lines of credit, and the Department of Education's student lending division are all creditors.

debit card[edit]

a card connected to a bank account--any time you use it to pay or take out money from an ATM, that money is deducted from your bank account. For more, see debit, credit, and prepaid cards

debt collector[edit]

a company that makes money just by collecting on debts they did not lend. Some debt collectors are hired by creditors to collect on their loans; others buy debts from creditors and collect themselves. For more, see debt collectors.

defense to repayment/DTR[edit]

a discharge of federal student loans for student debtors whose school defrauded them. For more, see getting your loans cancelled


a temporary stop to loan payments. On federal student loan deferment, see avoiding payment Direct deposit - An electronic transaction in which money is deposited directly into a payee's bank account from a payer's bank account.


a cancellation of a debt. It can happen in bankruptcy or if a debt is declared illegitimate or if a creditor decides not to collect anymore.

educational attainment[edit]

the level of education a student completes (high school, college, graduate school)


a bank account created for a specific purpose to be managed according to specific rules. usually used in mortgage loans for servicers to set aside payments for insurance and taxes.


an asset or amount of income that a creditor is not allowed to force you to give up. These are relevant both if a creditor sues you and in bankruptcy. They depend on state law.

false certification[edit]

a discharge of federal students loans for student debtors whose school falsified records. For more, see getting your loans cancelled


one-time charges a creditor adds to a debtor's bill for some additional thing that happened besides lending. Traditionally, interest is meant to cover the overall cost of lending and fees are only for additional services. But fees have become a very broad category since creditors like to use them to hide costs. For more, see principal, interest, and fees

FFELP loan[edit]

a type of federal student loan. See types of student loans


the company that creates one of the major credit scores


the interest rate on your loan does not change over the life of your loan. With a fixed rate, you can see your payment for each month and the total you will pay over the life of a loan. You might prefer fixed rates if you are looking for a loan payment that won't change.


a temporary stop on loan payments while interest accrues. On federal student loan forbearance, see avoiding payment. Some private student loans also provide forbearance. For more, see avoiding payment on private loans


the process by which a creditor takes a debtor's asset (usually a house) when that debtor has defaulted on their loan. see resising foreclosure


when a creditor forcibly takes some of your income directly from your bank account or your paycheck. Private lenders need a court order to do this. For more, see if you are sued The Department of Education does not. For more see federal loan default.

grace period[edit]

for federal student loans, the 6 month period after school in which you don't have to begin repaying your loans. See avoiding payment

guaranty agency[edit]

under the FFELP loan program, a guaranty agency literally guarantees the profits of private lenders by buying the loans off of them at close to full price if a debtor defaults. For more, see types of federal student loans

income-based repayment/IBR[edit]

a repayment plan that determines payments based on a debtor's income. For more on federal student loans, see repayment plans

installment loans[edit]

a loan with regular payments, usually of the same amount. Car loans, mortgages, and student loans are all installment loans.


money a creditor charges for borrowing. Usually calculated as a percentage of principal. For more, see principal, interest, and fees


a decision of a court that a debtor owes a certain debt. A judgment is necessary for a creditor to be able to engage in forcible collection actions like garnishment, liens, and asset seizure.


when a creditor takes partial legal control over an asset that gives them the power to seize the asset if the debtor that owns the asset fails to pay.

loan sequence[edit]

An initial payday loan and all subsequent renewal loans until the loan is paid off.

minimum payment[edit]

a trick that creditors use to make you pay less per month so that you pay more in interest over the long term. For more, see how credit cards work


any loan backed up by an asset as a collateral. Most commonly used to talk about home loans. [more on housing debt coming soon]

negative equity[edit]

if you owe more on your current loan than the collateral is worth-referred to as being "upside down"-then you have negative equity. For instance, if you had negative equity on your car loan, when you tried to sell your vehicle you wouldn't be able to get as much as you owe on it. That negative equity will need to be paid off if you want to trade-in your vehicle and take out an auto loan to purchase a new vehicle.


for federal student loans, an offset is when the government automatically takes away your tax return or public benefits because you have defaulted on your loan. For more, see default on federal student loans


when you withdraw through a check, ATM withdrawal, debit card purchase, or electronic payment more than what's available in your account

overdraft fee[edit]

the penalty associated with an overdraft

payday loan[edit]

a short-term loan for a relatively small amount of money, usually (but not always) due for payment on a debtor's payday.

payroll card[edit]

a type of prepaid card that is loaded by an employer. For more, see debit, credit, and prepaid cards

perkins loan[edit]

a type of federal student loan

prepaid card[edit]

a card that you have to put money on in advance in order to use it, but not associated with a bank account. For more, see debit, credit, and prepaid cards


the amount of money that a debtor has to pay down in order to eliminate a debt. Generally, the principal is the amount originally borrowed minus any amount already paid down. Sometimes fees and interest are added onto the original principal in a process called "capitalizing". For more, see principal, interest, and fees

promissory note[edit]

the contract a debtor is supposed to sign in order to take out most loans. Promissory notes contain the terms and conditions of the loan agreement and are generally required for a creditor to prove that a debtor owes them money in court. For more, see contracts.


see "consolidation"

revolving loan[edit]

a loan without a fixed number of payments and a flexible principal amount. In other words, a line of credit that you can draw down and repay on flexible terms. Credit cards are the most common form of revolving credit nowadays. Another example is a store that allows you to buy on credit without paying it off each month. For more, see credit cards

secured loan[edit]

a loan backed by collateral/security.


see collateral.


a company that contracts with a creditor to deal with with the billing and collection aspects of the lending process (i.e the parts that involve interacting with a debtor). A servicer is not the same as a debt collector. Unlike a debt collector, they can deal with loans that are not in default and they never own the loan. In fact, sometimes debt collectors hire servicers to deal with debtors. See a list of federal student loan servicers here

stafford loan[edit]

a type of federal student loan. see types of student loans


designated space where customers can purchase goods or services in person from a business. For payday loans, it differentiates between in-person loans and online loans.


information about a particular debt on a credit report. Each debt a debtor has has its own tradeline on a credit report. For more, see credit reports

truth-in-lending act (TILA)[edit]

a federal law that requires that borrowers receive written disclosures about important terms of credit before they are legally bound to pay the loan. These important terms include: " Annual Percentage Rate: the APR is the cost of credit expressed as a yearly rate in a percentage; " Finance Charge: cost of credit expressed as a dollar amount (this is the total amount of interest and certain fees you will pay over the life of the loan if you make every payment when due); " Amount Financed: the dollar amount of credit provided to you (this is normally the amount you are borrowing); " Total of Payments: the sum of all the payments that you will have made at the end of the loan (this includes repayment of the principal amount of the loan plus all of the finance charges) The TILA disclosures will also include other important terms such as the number of payments, the monthly payment, late fees,, whether you can prepay your loan without a penalty, and other important terms. Note that the TILA disclosure is often provided as part of the loan contract, so you may be given the entire contract for review when you ask for the TILA disclosure. You should review it all, paying special attention to the disclosures noted above. You should always insist on receiving and reviewing your TILA disclosure before you sign your loan contract.


consumers or businesses that have limited or poor access to primary financial services provided by banks and rely on alternative financial services.


the process by which a creditor determines whether they can make a profit by lending to you (creditors call this "creditworthiness"). Underwriting is used to determine whether or not to lend to you and on which terms (at what interest rate, etc.)

unsecured loan[edit]

a loan without any collateral backing it up.


charging interest in excess of that allowed by law.

variable-rate financing[edit]

when the interest rate on your loan can change, based on the prime rate or another rate called an "index." With a variable-rate loan, the interest rate on the loan changes as the index rate changes, meaning that it could go up or down. Because your interest rate can go up, your monthly payment can also go up. The longer the term of the loan, the more risky a variable rate loan can be for a borrower, because there is more time for rates to increase.

Auto Loans Terms[edit]

actual cash value (ACV)[edit]

the value of the car according to independent sources such as the National Automobile Dealers Association or Kelley Blue Book. This value is important for some valuations, like for insurance.

base price[edit]

the price of the vehicle without options. The manufacturer's base price excludes charges for optional equipment (like a sunroof) and excludes mandatory charges for taxes, title, and registration. The base price also excludes the cost of optional add-ons such as credit insurance, service contracts, window etching, and rustproofing.

bank financing[edit]

when you go directly to a bank, credit union, or other lender, and apply for a loan (instead of getting a loan through the dealer). These lenders can "preapprove" you. If they are willing to make an auto loan to you, the lender will quote you an interest rate, loan term (number of months), and maximum loan amount based on factors such as your credit score(s), the terms of the transaction, and the type of vehicle. This lender will then give you a quote or a conditional commitment letter before you go to the dealership. The bank, credit union or other lender offers certain terms, and those terms are negotiable.

"buy here, pay here"[edit]

a "no credit check" or "buy here, pay here" auto loan is offered by dealerships that typically finance auto loans "in-house" to borrowers with no credit or poor credit. You may see signs like "no credit - no problem" or "military E-1 and up." The interest rate on loans from these dealerships can be much higher than loans from a bank, credit union, or other lender. Normally, a bank, credit union, or other lender will limit the amount it will lend for the purchase of a vehicle based on the vehicle's value. Those lenders will not loan more than the value because the vehicle in question simply isn't worth it. But when a dealer acts as its own "bank," it may not set such limits. So you may end up paying thousands of dollars more than the actual value. In other words, with "buy here, pay here," there is a bigger risk that you will borrow to pay more than the vehicle is worth. Another feature of this type of dealership is that your monthly payment is to the dealership. Some Buy Here Pay Here Dealerships, and some other lenders that lend to people with no credit or poor credit put devices in their vehicles that help them repossess or disable the vehicle if you miss a payment.

buy rate[edit]

the interest rate that a potential lender quotes to your dealer when you apply for dealer-arranged financing. Your dealer may offer you an interest rate that is higher than the buy rate. The rate the dealer offers you is called the "contract rate." Sometimes the lender pays the dealer a fee for arranging the financing that is based on the difference between these two rates. Dealers may have discretion to charge you more than the buy rate, so you may be able to negotiate that interest rate. o Ask the dealer if you qualify for a loan with better terms. In general, dealers and lenders are not required to offer the best rates available. This could save you hundreds or thousands of dollars over the life of the loan. o The dealer may offer you a higher interest rate than you can get directly from a bank, credit union, or other lender.

credit Insurance[edit]

optional insurance that make your auto payments to your lender in certain situations, such as if you die or become disabled. When you are applying for your auto loan, you may be asked if you want to buy credit insurance. There are four main types of credit insurance: " Credit life insurance, which pays off all or some of your loan if you die " Credit disability insurance, also known as accident and health insurance, which makes payments on the loan if you become ill or injured and can't work " Involuntary unemployment insurance, also known as involuntary loss of income insurance, which makes your loan payments if you lose your job due to no fault of your own, such as a layoff " Credit property insurance, which protects personal property used to secure the loan - in the case of an auto loan this would be your car - if it is destroyed by events like theft, accident, or natural disasters If a lender tells you that you'll only get the loan if you buy the optional credit insurance, you can submit a complaint to your state attorney general, your state insurance commissioner, or the Federal Trade Commission. If you decide you need insurance, there may be cheaper ways for you to obtain coverage than to buy credit insurance and add it to your auto loan. For example, life insurance may be less expensive than credit life insurance and allow your family to pay off other expenses in addition to your auto loan.

dealer-arranged financing[edit]

the dealer collects information from you and forwards that information to one or more prospective auto lenders. If the lender(s) chooses to finance your loan, they may authorize or quote an interest rate to the dealer to finance the loan, referred to as the "buy rate." The interest rate that you negotiate with the dealer may be higher than the "buy rate" because it may include an amount that compensates the dealer for handling the financing. Dealers may have discretion to charge you more than the buy rate they receive from a lender, so you may be able to negotiate the interest rate the dealer quotes to you.

debt cancellation or debt suspension products[edit]

Some auto dealers as well as banks and credit unions offer "debt cancellation" and "debt suspension" products or insurance under various names. These products are similar to credit insurance in terms of their function, but fees and other features may be different. In general, debt cancellation promises to eliminate the debt if you die or cancels the monthly payment if you become disabled, unemployed, or suffer some other specified hardship. You have to meet the qualifications and avoid the exclusions. Debt suspension is different. It temporarily postpones all or part of your monthly payment while you are facing a specified hardship. You are still expected to make the suspended payments in the future.

deficiency balance[edit]

if your vehicle is repossessed and sold, you may be responsible for paying the difference between the amount left on your loan (plus repossession fees) and the sale price. This is known as a "deficiency balance". For example, if you owe $10,000 on the vehicle and your creditor sells it in a commercially reasonable manner and gets $7,500, then the deficiency is $2,500 plus any other fees you owe. If you don't pay the deficiency, the lender may hire a debt collector to attempt to collect the debt. The lender may also file a lawsuit in court against you to collect the deficiency. If the lender obtains a judgment from the court, the lender can garnish your wages and take other steps to collect the judgment.

finance and insurance (F&I) department[edit]

the part of the auto dealership that markets loans and optional add-ons to customers after they have agreed to buy a vehicle at the dealership. At the F&I department, you may be asked if you want to buy optional add-ons like an extended warranty, auto service contract, credit insurance, or guaranteed asset protection (GAP) insurance.

force-placed insurance[edit]

in order to get a loan to buy a vehicle, you must have insurance to cover the vehicle itself. If you fail to obtain insurance or you let your insurance lapse, the contract usually gives the lender the right to get insurance to cover the vehicle. This insurance is called "force-placed insurance." This insurance protects only the lender, not you, but the lender will charge you for the insurance. Force-placed insurance is usually a lot more expensive than what you can obtain by finding an insurance policy yourself. If you have a complaint or a concern about this product, you can also contact your state insurance department or commissioner.

guaranteed auto protection (GAP) insurance[edit]

GAP insurance may be offered to you when you buy a vehicle. GAP insurance covers the difference (or gap) between the amount you owe on your auto loan and what your insurance pays if your vehicle is stolen, damaged, or totaled. You don't have to buy this insurance, but if you decide you want it, shop around. Lenders may set varying prices for this product. " It is highly unusual for a lender to require that you buy GAP insurance. If you are told that you are required to purchase a product such as GAP insurance, ask to see where your sales contract says it is required. If the contract does not explicitly state that it's required, then you can't be required you purchase it. " If you're told you must purchase a GAP plan to qualify for financing, contact the lender yourself to find out if that is true. If it is true, the cost of the GAP insurance must be included in the finance charge and reflected in the disclosed annual percentage rate (APR). GAP insurance can be excluded from the finance charge and APR if it is optional. If you have a complaint or a concern about this insurance product, you can contact your state insurance department or commissioner.

loan-to-value ratio (LTV)[edit]

the total dollar value of your loan divided by the actual cash value (ACV) of your vehicle. It is usually expressed as a percentage. Your down payment reduces the loan to value ratio of your loan. Your loan terms may be affected by the loan-to-value ratio, because the vehicle is the collateral for the loan, which means that if you default on your loan, the lender can take the vehicle. The lender may seek a down payment to reduce the size of the loan and make it less likely that the amount you owe on the loan will be more than the vehicle is worth.

manufacturer incentives[edit]

special deals, like 0% financing or cash rebates that you may have seen advertised for new vehicles. Often, they are offered only for certain models. Manufacturers offer these deals many times when they are having campaigns to sell certain models, or because they have a large inventory that they want to sell more quickly. Sometimes promotional interest rates are limited to people with high credit scores or to loans of a shorter duration.

manufacturer suggested retail price (MSRP)[edit]

the price that the automaker - the manufacturer - suggests that the dealer ask for the vehicle. It does not have to be the actual price that you pay. Many consumers negotiate to purchase the vehicle for a price below the MSRP.

negative trade-in[edit]

a dealer may offer to "roll in" the balance of your old loan into a loan for a new vehicle. This is called a "negative trade-in," because the trade-in adds to the cost of the new loan, rather than reducing it. This might make the new loan unaffordable. Be very careful to make sure you understand the total cost of the new loan and the monthly payments - and the loan term (in months) - before you agree to anything.

"no credit check" auto loan[edit]

see "buy here, pay here"

precomputed interest[edit]

one method, like simple interest, to calculate your interest due. The precomputed interest method always uses the original payment schedule to figure interest, even if you make payments early. If you have a contract with precomputed interest and plan to pre-pay your loan early in full or make larger payments in advance of your regularly scheduled amount, you will not get the same reduction in the interest charges that you would if your contract had a simple interest rate. If you pay on time for each payment over your loan term, there is little difference between simple and precomputed interest. Precomputed interest is generally not used by banks and credit unions. Some lenders may offer precomputed interest and others may not. Shop around and compare multiple offers.

retail installment sales contract or agreement[edit]

a retail installment sale is a transaction between you and the dealer to purchase a vehicle where you agree to pay the dealer over time, paying both the value of the vehicle plus interest. A dealer could sell the retail installment sales contract to a lender or other party. A loan is a transaction between you and a bank or other lender for money, where you use the money to purchase a vehicle and agree to repay the loan balance plus interest. A retail installment sales contract agreement is slightly different from a loan. Both are ways for you to obtain a vehicle by agreeing to make payments over time. In both, you are generally bound to the agreement after signing. With a retail installment sales contract, you may have additional rights under your state's law (for example, the ability to stop making payments to the dealer) if there is a defect in your vehicle.

risk-based pricing[edit]

occurs when lenders offer different consumers different interest rates or other loan terms, based on the estimated risk that the consumers will fail to pay back their loans. This means, for example, that lenders will generally offer a higher interest rate to you if they view you as a higher risk borrower - say, because you recently declared bankruptcy, lost a job, or are several payments behind on a mortgage. For the same exact loan, lenders will generally offer a lower interest rate if they view you as a lower risk - say, because you have a good credit score and are employed.

risk-based-pricing notice[edit]

each lender uses its own process to determine the risk that you will default on a loan, but most use your credit score, employment status, income, and other outstanding debts, among other factors. If a lender relied on a credit report in making a lending decision about you, you should get a Risk-Based Pricing notice if you receive less favorable terms than other borrowers based in any part on your credit report. This notice includes information about how to get your free annual credit report, your credit score, the score range, and the negative factors affecting the score. Lenders may NOT use certain legally prohibited factors to decide whether to give you a loan or how much to charge you, such as your race, gender or age.

simple interest[edit]

one method, like precomputed interest, to calculate your interest due. The simple interest method uses the amount or actual balance outstanding on the day your payment is due. If you pay more than your monthly payment, this amount should get smaller as you pay down your loan. . If you think there's a possibility you may want to pre-pay your loan in full or pay more than what you owe to pay your loan off earlier, a loan with simple interest will probably make more financial sense than precomputed interest for you.

starter interrupt device (SID)[edit]

a device that allows a lender or lessor to remotely deactivate a vehicle's ignition system if a borrower/lessee misses payments or defaults. The shut-down can be temporary, until a payment is made, or it can be done to make repossession easier. The rules on SIDs vary from state to state so ask your lender before signing the contract if your vehicle is equipped with a SID. If it is, you should ask how this process will work - for example, will you get any warning before the vehicle is shut down? Is there a way for the vehicle to be restarted in case of an emergency?

spot delivery[edit]

some dealers will allow the customer to take possession of the new vehicle before the loan is approved by the lender. This practice is sometimes called "spot delivery." In some cases after you drive away with the vehicle but before the sale is finalized, the dealership will later tell you that they couldn't make the loan at the agreed-upon terms. They then may ask you to bring back the vehicle and renegotiate the loan for a higher interest rate, a longer term, a larger down payment, or a combination of those terms.

vendor's single interest (VSI) insurance[edit]

VSI insurance protects the lender, but not you, in the event that the vehicle is damaged or destroyed. The cost of the insurance may be passed on to you in the overall cost of your loan or may appear as a separate charge.

yo-yo sale[edit]

some dealers will allow the customer to take possession of the new vehicle before the loan is approved by the lender. This practice is sometimes called "spot delivery." In some cases after you drive away with the vehicle but before the sale is finalized, the dealership will later tell you that they couldn't make the loan at the agreed-upon terms. They then may ask you to bring back the vehicle and renegotiate the loan for a higher interest rate, a longer term, a larger down payment, or a combination of those terms. If this happens and you don't agree to a second deal, the dealer will have to unwind the sale and give you back your trade-in and down payment. This is sometimes called a "yo-yo sale" and you may be entitled to legal protections in some situations.