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Getting the Hang of Loan Lingo

Aug 18, 2007
Go to get a loan and get ready to be assailed by all kinds of financial jargon. We come across terms like "Agreement in Principle" and "Adjustable Rate Mortgages" to "Credit History" and "Equity Release". Going to get a loan is like learning an entirely different language. If you feel like you understand the English language, just try asking a mortgage salesman for loan advice. By the end of it all, you might just come home feeling like you have been hit by a dictionary of financial jargon.

However, it really is not all that difficult when you get down to the basics. For instance, "Agreement in Principle" is just a complicated way of referring to the agreement that is made between the lender and the borrower regarding the amount that is to be lent. To a great extent, this amount would depend on aspects like your credit history, the collateral that you are offering, and your current income among other things.

Are you already feeling a little overawed by all this jargon? Let me simplify things a little more for you. Credit history refers to whether or not you have repaid loans that you had taken earlier. If you have been a defaulter on a previous loan, you have a bad credit history. If you have not defaulted, you will be said to have a good credit history. At this point, let me remind you that a bad credit history puts you in a bad spot when it comes to getting loans later in life.

"Collateral" refers to the asset (usually property) that you use as security to avail of a secured loan. An unsecured loan requires no such collateral. If you do not own property but are hoping to invest in it, you will come across all kinds of mortgage terminology like "Adjustable Rate Mortgages". This is distinct from "Fixed Rate Mortgages" where the interest rate is fixed irrespective of market fluctuations. In an adjustable rate mortgage, the rate may vary depending on the market conditions. These days, one can avail of mortgages that have a combination of fixed and adjustable rates.

If you already own a house, but are paying mortgage on it, "Equity Release" might be just your thing. Equity means the difference between the value of your home and the mortgage amount that is still due. Free this equity by means of an equity loan to finance other expenses.

Familiarize yourself with some financial lingo before you start looking for a loan. Make loan hunting a whole lot easier!
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