Use
this glossary of terms to help you understand language used in
educational materials and loan documents in general. (produced by
the Access Group)
Accrued Interest - Interest which accrues on the loan and
is payable by the borrower or, in the case of subsidized Federal
Stafford Loans, by the federal government during in-school, grace,
and deferment periods.
Amortization - The reduction and retirement of a debt
through periodic payments of interest and principal.
Annual Percentage Rate (APR) - A percentage calculation
that reflects the total cost of a loan (interest plus all fees) on
an annual basis.
Capitalization of Fees and Interest - Fees and accrued
interest on a loan are added to the principal balance. Both then
become part of the principal balance and begin to accrue interest.
Credit Bureau - An agency that compiles, maintains, and
distributes credit and personal information to creditors. This
information may include a borrower’s payment habits, number of
credit accounts, balance of those accounts, place of employment,
length of employment, and records of financial transactions.
Lenders check with credit bureaus to learn whether a potential
customer seeking a loan is likely to repay, based on the way other
obligations have been handled in the past.
Credit Bureau Scoring - A quick and consistent method of
determining the likelihood that you will repay your loans. It is
an evaluation tool that predicts how well you will manage credit,
relative to other borrowers, based on your past credit
performance. The credit bureau score is a snapshot that focuses on
individual borrower behavior. Some examples of the factors used to
calculate your credit score include promptness in paying bills,
number of credit cards, total credit limit, and the amount owed on
accounts.
Credit report - A summary of your credit history. It is
maintained by an authorized credit reporting agency and sent to
potential creditors, when requested. Credit reports include
information such as current and recent addresses, employer
information, payment performance for seven years, type of debt you
have and the lending institution for each account, available
credit, and current balances.
Default - The failure of a borrower either to make
installment payments when due or to comply with other terms of the
promissory note.
Deferment - A period during which the repayment of the
principal amount of the loan is suspended as a result of the
borrower meeting one of the requirements established by law and/or
contained in the promissory note. During this period, the borrower
may or may not have to pay interest on the loan.
Deferred Interest - Interest that accrues, but on which
payment is delayed until a later date. Such deferred (accrued)
interest may be capitalized.
Delinquent Borrower - A borrower who has failed to make one or
more installment payments by the due dates.
Disclosure Statement - A statement of the actual loan
costs, including the interest rate and any additional fees, which
is presented to the borrower at the time the loan is made (see
"Repayment Disclosure Statement").
Entrance Interview - A loan repayment and debt management
counseling session required by federal regulations that is
arranged and conducted by a school’s financial aid office for
students who are receiving their first federally guaranteed
student loan associated with attendance at the school. This
counseling session must be conducted before the student can
receive the proceeds of the first disbursement of any federally
guaranteed education loan.
Exit Interview - A loan repayment and debt management
counseling session required by federal regulations that is
arranged and conducted by a school’s financial aid office for
students who have received federally guaranteed loans while
attending school. This counseling session must be conducted before
the student graduates or leaves the school, whenever possible.
Federal Consolidation Loan - A program offered by eligible
lenders that allows many federal education loans to be combined
into a single new loan.
Federal Perkins Loans - A need-based federal loan for
students, which is issued by a participating school.
Federal Stafford Loans - A federal education loan issued by
a participating lender. There are two types, subsidized and
unsubsidized. Subsidized Federal Stafford Loans are based on need,
and the interest is paid by the federal government while the
student is in school. Unsubsidized Stafford Loans are not based on
need, and the borrower is responsible for the interest.
Federal Supplemental Loans for Students (SLS) - This
program was merged with the unsubsidized Federal Stafford Loan
program on July 1, 1994.
Forbearance - At the lender’s option, an agreement to
accept a temporary cessation of loan payments, smaller payments
than were previously scheduled, or an extension of time for making
payments. Forbearance may be given for circumstances not covered
by deferment that adversely affect the borrower’s ability to meet
loan payment obligations.
Garnishment of Wages - The deduction of a portion of a
borrower’s paycheck, with or without the borrower’s consent. A
lender or the government may take this action to force repayment
of a loan that is in default.
Graduated Repayment - Loan repayment that is lower at the
beginning of repayment and gradually increases during the
repayment period. It is not based on income.
Guarantor - A state agency or private, nonprofit
institution or organization that insures lenders against losses
due to a borrower’s default, death, disability, or bankruptcy.
Guarantee Fee/Insurance Premium -
A percentage of principal charged to the borrower by the
guarantor to insure a lender against loss resulting from a
borrower’s failure to repay.
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