Do you need to take out a loan or close a credit transaction?
If so, you should make sure that the financing option you choose is the one that best suits your needs.
To do this, you should review all available information and familiarize yourself with the technical terminology used.
We’ve put together a list of the most commonly used financial terms to help you better understand them.
Without further ado, let’s explain the meaning of the ten most important and commonly used terms when applying for financing.
This acronym stands for the National Association of Credit Institutions.
It is an organization made up of banks, finance companies, and other major entities in the sector.
Its purpose is to compile the so-called ASNEF list, which includes customers in default.
The guarantor may be an individual, a legal entity, or real property, and guarantees the repayment of the loan granted.
If the borrower fails to repay the debt, liability passes to the guarantor.
Although most people tend to use this word as a synonym for “loan,” the two terms are not the same. In both cases, you receive financing, but within financial terminology, there are notable differences.
With a loan, you receive the entire agreed-upon amount in a single lump sum at the outset.
With a line of credit, you have access to a maximum amount that you can draw upon as needed, at your own pace. You pay, primarily, for what you actually use.
This refers to the total interest earned on an investment over its entire term and takes into account the interest accrued from the very beginning.
Pay close attention to this difference—it’s the key point:
– Simple interest: Calculated on the principal amount borrowed.
– Compound interest: Calculated on the principal amount borrowed plus the interest accumulated in previous periods.
This occurs when you want to pay off outstanding debts early in order to do so at a lower cost—with the goal of saving on accrued interest.
The terms may or may not be specified in the signed contract.
In any case, you must agree on the settlement with the lender.
It applies to all or part of the remaining debt.
If you choose this option or are granted it, you provide an asset you own as collateral to guarantee repayment of your debt.
Generally, your home is used as collateral, which you will lose if, for any reason, you are unable to repay the loan.
Also known as the debtor, the borrower is obligated to repay the loan in a timely and proper manner.
The Annual Percentage Rate (APR) measures the total cost of your loan.
In addition to the loan installments and interest, it includes the percentage corresponding to fees and charges (origination fees, application fees, etc.).
It is, therefore, an extension or adjustment of the Nominal Interest Rate (TIN), which we’ll discuss next.
The Nominal Interest Rate is the interest rate applied to your loan.
So, if you’ve been granted 1,000 euros at a Nominal Interest Rate (TIN) of 3% per year, in the first year you’ll pay 30 euros to your lender in interest.
This acronym stands for Annual Percentage Rate, that is, the total amount you’ll have to pay over the course of a year.
It is the sum of your twelve monthly payments plus all interest paid.
As you can see, getting a loan can be somewhat complicated, so mastering this financial vocabulary and expanding your knowledge will be of great help to you.
In any case, you should always look for financing that’s transparent and easy to understand.
Unfortunately, not all financial institutions are transparent with their customers. We recommend relying only on financial professionals who provide you with clear and detailed information.
Before applying for a loan, we recommend exploring alternative financing options to find a solution tailored to your needs. At Workcapital, we have extensive experience in the industry and always put ourselves in your shoes.
We speak plainly and focus on your best interests!