Personal Loan Glossary to Decode Complicated Loan Jargons

Personal loans are one of the best financial instruments that cater to urgent and short-term needs. These loans are unsecured, require minimal documentation and are easily available provided the borrower has a sound credit history, credit score, income, and meets other eligibility criteria. But it is always wise to read all documents and understand the jargons before finalizing the loan agreement.

• Annual Percentage Rate (APR) Overall cost of credit including the interest, fees, and other charges involved in obtaining the loan. It is expressed annually and helps in loan comparisons.
• Application Fee: Costs incurred by the lender in arranging and processing the loan.
• Automatic Payment: Type of EMI payment option, wherein fixed monthly repayments are automatically deducted per the specified date; also called e-NACH.
• Credit History: Record of loans undertaken and repayments made (including late payments, fees, bankruptcy, etc.) by the borrower. This affects loan eligibility.
• Credit Report: It is a report by authorized credit rating agency depicting the borrower’s credit history and loan repayment status, including credit cards.
• Credit Score: A 3-digit score based on the overall creditworthiness of the borrower. It is typically between 300-900; the higher it is, the better.
• Debt Consolidation: Loan which consolidates all current debts of the borrower into one single loan. This helps reduce the rate of interest and simplify payments.
• Default: Case when the borrower fails to meet the legal terms of the agreement. A default can attract significant charges and even legal proceedings against the borrower.
• Equated Monthly Installments (EMI): EMIs are fixed deductions towards repayment of a loan made monthly on a specified date within a given period. EMIs are calculated based on the principal, interest rate and loan tenure.
• Fixed Interest Rate: Interest rate calculated based on a fixed principal and remains stagnant during the entire loan term.
• Floating Interest Rate: Interest rate calculated based on the outstanding principal amount every month is a floating interest rate.
• Foreclosure Charges: penalty charges paid by the borrower for the closure of loan before the set tenure.
• Gross Income: This is borrower’s pre-tax income.
• Late Payment: Fee charged upon delayed EMI payments.
• Part-payment or Pre-payment Charges: Penalty charged in case of loan repayment (in part or full) before the expiry of the tenure.
• Top-up Loan: This is a loan offered by the lender over the borrower’s current loan. In cases where the existing lender does not provide the facility, the loan can be transferred to another institution.

Personal loan glossary enables a better understanding of loan agreement dynamics, ensuring the borrower is in complete agreement with the terms stated.

The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.