A Complete Guide of Personal Loan Glossary & Terminology

Personal loans are a common method of availing funds to fulfill a number of individual or business purposes. Be it higher education, wedding, a home renovating, or starting a business, an instant personal loan from SMFG India Credit can help you reach your goals. 

Here is a personal loan glossary that will help you understand the product better. 

• Annual Percentage Rate (APR): The Annual Percentage Rate of a loan refers to the overall finance charges including the interest component on the loan and the principal amount. You can also view it as the overall cost of credit. 
• Application Fee: The fee levied by the lending institution in relation to processing the personal loan is called the application fee. 
• Automatic Payment: A direct debit is an automatic payment facility that the borrower can opt for when repaying their personal loan installments. The EMI amount is deducted on a specific day every month until the full amount of the loan is repaid. 
• Balance Transfer: A personal loan balance transfer refers to shifting an ongoing loan from one lending institution to another especially if the loan repayment terms are more attractive to the borrower.
• Borrower: The person who has applied for the loan and has been granted the same by the lending institution is the Borrower. This applies to all loans. 
• Collateral: The security that is put up against a secured loan is called a collateral. In the event of repayment failure, the lender has the right to repossess the collateral in order to recuperate any financial loss. All SMFG India Credit personal loans are unsecured and there is no need for any collateral to be pledged.
• Credit Agency: An agency that reviews the credit information on prospective loan applicants and reports their findings to the lending institution to determine your eligibility for a personal loan.
• Credit History: The record of all repayment transactions and borrowing of an individual seeking a loan is called Credit History. 
• Credit Report: A certified credit rating agency generates a Credit Report on an individual’s creditworthiness. This report is based on the credit history of the individual.
• Credit Score: The creditworthiness of an individual is computed based on his/her history of borrowing and repaying in a numeric value or score known as the Credit Score. This number is displayed on the individual’s credit report.
• Default: In the event that a borrower is not able to repay the personal loan as per the repayment schedule, he or she is classified as a defaulter or is said to have defaulted on the loan. 
• Fixed Interest Rates: If the interest rate on the personal loan remains unchanged over its tenure, it is known as a fixed interest rate.
• Floating Interest Rates: Floating interest rates are the exact opposite of fixed interest rates. It keeps changing over the loan tenure.
• Guarantor: If the personal loan amount is significantly high, the lender may require a guarantor along with the borrower who is also legally liable to repay the loan in full if in case the primary borrower is unable to do so.
• Interest Rate: The lender charges a percentage of the outstanding loan amount every month, which forms part of the EMI amount. The remaining amount contributes towards repayment of the principal amount. This percentage which is calculated on the principal outstanding every month  is known as the interest rate. 
• Late Payment: Delay in your monthly loan repayments to the lender is called a Late Payment. It attracts a late payment fee.
• Lender: The financial institution that has the authority to lend funds to prospective borrowers are known as lenders.
• Loan Agreement: The terms and conditions of the personal loan are outlined in an official document that has to be signed by both the lender and the borrower. This is called the loan agreement.
• Loan Prepayment: Personal loan prepayment is when the borrower wishes to pre-close the loan before the expiry of the allocated repayment tenure.
• Prepayment Fees: Paying a large amount more than the EMI amount in an effort to repay the loan sooner may attract a percentage of fees. This is known as Prepayment Fees. The amount which may be charged towards closing a loan by paying the balance amount ahead of the maturity date is called a foreclosure fee.
• Principal Amount: The amount of loan sought by the borrower is referred to as the principal amount. This is the amount that is sanctioned to the borrower and includes any deductions such as processing fees.
• Term: The allocated period of time given to the borrower to repay the loan is known as the term.

Must Read: Different Types of Personal Loans in India

Conclusion

While the list of unsecured personal loan terminology may not be exhaustive, we hope that it gives you the necessary information you need to make your loan application.