Some Common Loans Jargon Explained

Some Common Loans Jargon Explained
The world of​ personal finance can sometimes seem to​ have a​ language all of​ its own,​ and it​ can be difficult to​ seperate the​ wheat from the​ chaff when comparing products such as​ loans .​
With all things financial,​ it's vital to​ have a​ good understanding of​ what you're agreeing to​ before you​ sign on​ the​ dotted line,​ and so here we explain some of​ the​ most common terms you're likely to​ come across in​ loan advertisements,​ application forms,​ and credit agreements.
This stands for Annual Perentage Rate,​ and is​ basically the​ cost of​ the​ loan .​
As well taking into account the​ interest rate you​ pay,​ it​ includes any fees or​ charges you​ need to​ pay .​
For example,​ if​ two loan packages have identical interest rates,​ but one charges a​ setting up fee,​ then that loan will have a​ higher APR.
- Sub Prime
This is​ the​ industry term for applications from people with less than perfect credit ratings .​
Sub Prime credit is​ also referred to​ as​ adverse credit,​ and people with poor credit ratings may struggle to​ get an​ approval,​ and even then they're almost certain to​ be charged a​ higher rate of​ interest.
- Advance
This is​ simply the​ financial services industry's word for the​ amount you​ borrow.
- Term
The term of​ a​ loan is​ the​ length of​ time you​ agree to​ repay the​ debt over .​
Agreeing a​ longer term for your finance may result in​ a​ lower monthly repayment,​ but as​ you're paying interest for a​ longer period then overall a​ longer term will usually mean more interest paid overall.
- Collateral or​ Security
For a​ secured loan,​ home loan or​ mortgage,​ you'll be borrowing money against the​ value of​ your home .​
Your home is​ then known as​ the​ collateral or​ security on​ the​ loan .​
If you​ fail to​ keep up your repayments,​ then the​ lender can sieze your property,​ sell it,​ and use the​ proceeds to​ clear the​ debt .​
Having this option means that there is​ less risk for the​ loan company,​ and so loans with collateral can be advanced to​ people with poorer credit ratings,​ and the​ amounts borrowed can be larger.
LTV stands for 'Loan to​ Value' and is​ a​ measure of​ how large a​ loan is​ in​ comparison to​ the​ value of​ the​ collateral it's secured on​ .​
It is​ given as​ a​ percentage,​ so a​ loan of​ $80,​000 secured on​ a​ property worth $100,​000 would have an​ LTV of​ 80% .​
Lenders like to​ have a​ relatively low LTV as​ this means that if​ they need to​ sell a​ property because of​ a​ default on​ the​ loan,​ then they're very likely to​ receive enough funds to​ clear the​ debt,​ even if​ they sell at​ below market value.
HLC is​ an​ abbreviation of​ Higher Lending Charge,​ which is​ a​ fee sometimes levied on​ loans with a​ high Loan to​ Value (LTV) ratio .​
HLCs are normally only imposed when you're borrowing more than 90% of​ the​ value of​ the​ security,​ and it​ should always be made very clear to​ you​ before you​ sign a​ loan agreement if​ one of​ these charges is​ to​ be made.

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