Financial Glossary
Financial jargon translated into plain English. Search or browse to understand the terms that matter for your money.
A
APR (Annual Percentage Rate)
The yearly interest generated by a sum that's charged to borrowers or paid to investors. APR is expressed as a percentage that represents the actual yearly cost of funds over the term of a loan or income earned on an investment.
Amortization
The process of spreading out a loan into a series of fixed payments over time. You'll be paying off the loan's interest and principal in different amounts each month, although your total payment remains equal each period.
B
Balance Transfer
The process of moving debt from one credit card to another, usually to take advantage of a lower interest rate.
C
Compound Interest
Interest calculated on the initial principal, which also includes all of the accumulated interest from previous periods on a deposit or loan.
Credit Utilization Ratio
The amount of revolving credit you're currently using divided by the total amount of revolving credit you have available. It's heavily weighted in credit scoring models.
D
Debt-to-Income Ratio (DTI)
All your monthly debt payments divided by your gross monthly income. This number is one way lenders measure your ability to manage the monthly payments to repay the money you plan to borrow.
E
Escrow
A legal concept describing a financial instrument whereby an asset or escrow money is held by a third party on behalf of two other parties that are in the process of completing a transaction.
F
Fiduciary
A person or organization that acts on behalf of another person or persons, putting their clients' interests ahead of their own, with a duty to preserve good faith and trust.
H
HELOC
A Home Equity Line of Credit is a line of credit secured by your home that gives you a revolving credit line to use for large expenses or to consolidate higher-interest rate debt.
I
Index Fund
A type of mutual fund or exchange-traded fund (ETF) with a portfolio constructed to match or track the components of a financial market index, such as the Standard & Poor's 500 Index (S&P 500).
P
Prime Rate
The interest rate that commercial banks charge their most creditworthy customers. It serves as the basis for many other interest rates, like credit cards and personal loans.
Principal
The original sum of money borrowed in a loan or put into an investment, separate from the interest.