Key Personal Finance Terms: Credit, Loans, and Legal Rights
Key Personal Finance Terms
Closed-end credit: One-time loans that the borrower pays back in a specified period of time and in payments of equal amount.
Revolving check credit: A prearranged loan from a bank for a specified amount; aka bank line of credit.
Home equity loan: A loan based on the difference between the current market value of a home and the amount still owed on the mortgage.
Fair Credit Reporting Act: Regulates the use of credit reports, requires the deletion of obsolete information, and gives consumers access to their files and the right to have erroneous information deleted.
Equal Credit Opportunity Act (ECOA): Bans discrimination in the extension of credit based on race, color, age, sex, marital status, and other factors.
Open dating: Information about freshness or shelf life found on the package of a perishable product.
Unit pricing: The use of a standard unit of measurement to compare the prices of packages of different sizes.
Rebate: A partial refund of the price of a product.
Service contract: An agreement between a business and a consumer to cover the repair costs of a product.
Mediation: The attempt by an impartial third party to resolve a difference between two parties through discussion and negotiation.
Arbitration: The settlement of a difference by a third party whose decision is legally binding.
Small claims court: A court that settles legal differences involving small amounts below a set limit and employs a process in which the litigants usually do not use a lawyer.
Class-action suit: A legal action taken by a few individuals on behalf of all the people who have suffered the same alleged injustice.
Legal aid society: One of a network of publicly supported community law offices that provide legal assistance to consumers who cannot afford their own attorney.
Zoning laws: Restrictions on how the property in an area can be used.
Earnest money: A portion of the price of a home that the buyer deposits as evidence of good faith to indicate a serious purchase offer.
Mortgage: A long-term loan on a specific piece of property such as a home or other real estate.
Points: Prepaid interest charged by a lending institution for the mortgage; each discount point is equal to 1% of the loan amount.
Conventional mortgage: A fixed-rate, fixed-payment home loan with equal payments over 10, 15, 20, 25, or 30 years.
Adjustable-rate mortgage: A home loan with an interest rate that can change during the mortgage term due to changes in market interest rates; also called a flexible-rate mortgage or a variable-rate mortgage.
Rate cap: A limit on the increases and decreases in the interest rate charged on an adjustable-rate mortgage.
Payment cap: A limit on the payment increases for an adjustable-rate mortgage.
Second mortgage: A cash advance based on the paid-up value of a home; aka home equity loan.
Reverse mortgage: A loan based on the equity in a home that provides elderly homeowners with tax-free income and is paid back with interest when the home is sold or the homeowner dies.
Title insurance: Insurance that, during the mortgage term, protects the owner and lender against financial loss resulting from future defects in the title and from other unforeseen property claims not excluded by the policy.
Deed: A document that transfers ownership of a property from one party to another.
Escrow account: Money, usually deposited with the lending financial institution, for the payment of property taxes.