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By 1st Finance Guide
Bankruptcy - Having been legally declared financially insolvent. There are
two types of bankruptcy - liquidation, in which your debts are cleared
(discharged) and reorganization, in which you provide the court with a plan
for how you intend to repay your debts.
Collateral - Property acceptable as security for a loan or other obligation.
Collection Agency - A company hired by a creditor to collect a debt that it is
owed.
Contract - An agreement between two or more parties, usually written down and
enforceable by law .
Cosigner - To endorse (another`s signature), as a loan agreement, lease or
credit application. If the primary debtor does not pay, the cosigner is fully
responsible for the loan or debt.
Credit Bureau - An organization to which business firms apply for credit
information on prospective customers.
Credit Report -An account of your credit history, prepared by a credit bureau.
A credit report will contain credit history, such as what you owe to whom and
whether you make the payments on time, as well as personal history, such as
your former addresses, employment record and any lawsuits in which you have
been involved.
Creditor - A person or entity (such as a bank) to whom a debt is owed.
Debtor - A person or entity (such as a bank) who owes money.
Debt to Income Ratio - Most mortgage lenders use this ratio to analyze your
financial well-being. It is figured by using your monthly debt divided by
your monthly income. The lower the percentage the better your financial
picture. This is often referred to as credit worthiness.
Default - To fail to pay money when it is due. A default on a mortgage or loan
takes place when you fail to make the loan payments on time, fail to maintain
adequate insurance or violate some other provision of your agreement with the
mortgage / loan company.
Discharge (of debts) - A court`s writing of off the debts of a person or
business that has filed for bankruptcy.
Dischargeable Debts - Debts that can be erased by going through bankruptcy.
Down Payment - A cash payment made by a buyer when they purchase a property.
Equity - An increase in the value of your home or decrease in the loan amount
on your home creates equity. Equity is the difference between what is owed on
your home and the sale value. Most home equity lenders will allow you to
borrow up to 80% of that value.
Fair Isaac and Company - Fair Isaac is the company responsible for creating
the popular FICO score. This three digit score is created using information
from your credit report and ranges from 300-850.
Foreclosure - The forced sale of property to pay off a loan on which the owner
of the property has defaulted.
Garnishment - A court order directing a third party who holds money or
property belonging to a defendant to withhold it and appear in court to
answer inquiries.
Grace Period - A period of time during which you are not required to make
payments on a debt.
Guarantor - A person who makes a legally binding promise to either pay another
person`s debt or perform another person`s duty if that person defaults or
fails to perform.
Interest - A commission you pay a bank or other creditor for lending you money
or extending you credit. Usually calculated as a percentage of the mortgage
or loan.
Lien - The right to take and hold or sell the property of a debtor as security
or payment for a debt or duty.
Loan Consolidation - The combining of a number of loans into a single new loan.
Usually done to gain more favourable terms e.g. lower cost repayments or
longer time to pay.
Principal - A sum of money owed as a debt, upon which interest is calculated.
If you purchased an item for $100 on your credit card that would be the
principal balance.
Repossession - A creditor`s taking of property that has been pledged as
collateral for a loan.
Secured Debt - A debt on which a creditor has a lien. A car loan would be an
example of secured debt.
Term - The time required to repay a loan.
Unsecured Debt - A debt that is not tied to any item of property. Credit card
debt is an example of unsecured debt.
About the Author
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