An annual fee paid to an agent for the work and responsibility involved in managing a loan after it has been signed.
Annual Percentage Rate (APR) is a measure of the cost of borrowing, expressed as a yearly interest rate. It includes interest as well as other fees and charges for a loan.
Arrearage refers to the amount of overdue payments that are owed and unpaid. This can apply to various financial obligations, including loans, mortgages, bond interests, and dividends on cumulative preferred stock.
Asset-Backed Securities (ABS) are financial instruments backed by loan paper or accounts receivable originated by banks, credit card companies, or other providers of credit, often enhanced by a bank letter of credit or by insurance coverage from a third party.
A bailout is an effort by the government to provide sufficient financial assistance to prevent the failure of a specific private or quasi-private entity. The program may consist of loans or grants to satisfy outstanding debts or may involve government purchase of an equity position in the firm.
A commercial institution that takes deposits and extends loans, concerned mainly with making and receiving payments, accepting deposits, and making short-term loans to private individuals, companies, and other organizations.
Bank money refers to the currency created by commercial banks through the process of lending, utilizing the deposits they receive under a fractional reserve banking system.
The base rate is the benchmark interest rate set by a nation's central bank, influencing the rates commercial banks charge borrowers and pay to depositors.
A borrower is a person who has received a loan and is obligated to repay the amount borrowed (principal) with interest and other fees, according to the loan terms.
The Borrowing Power of Securities refers to the ability of a client to borrow funds from a financial institution, using the purchased securities as collateral for the loan.
A loan in which the whole of the principal is repaid in a single final payment known as a 'bullet', although interest may be paid in interim payments. Compare with an amortizing loan.
Understand the various means used by companies to raise finance including shares, debentures, loans, options, and warrants, and the important distinctions and regulations that govern them.
Cash value refers to the amount of money a policyholder is entitled to receive upon the cancellation of a life insurance policy or the amount available for loans and withdrawals before the policy matures or is cashed out.
Compound interest refers to the interest on a loan or deposit calculated based on both the initial principal and the accumulated interest from previous periods. It is a crucial concept in finance and investing, offering greater returns compared to simple interest.
The contract interest rate, also known as the face interest rate or nominal interest rate, is the stated annual interest rate on a loan or bond, before any adjustments for compounding or inflation.
The contract rate, also known as the face interest rate, refers to the interest rate stated on a financial instrument, such as a bond or loan, which dictates the amount of interest the issuer will pay periodically to the holder.
The effective overall rate of interest that a company pays on its loans, bonds, and other debts, used in calculating the total cost of capital for that firm. This is usually calculated as an after-tax figure.
Credit rationing refers to the allocation of loans to creditworthy borrowers by means other than pure market mechanisms. This often occurs when interest rates are maintained below the level that an unregulated market would set, resulting in excess demand for loans.
A creditor is an entity that is owed money, either for goods or services provided or as a result of a loan. Creditors have a legal right to claim the owed amount from the debtor.
Interest that has not been paid on time. Implies a more serious state of delay than past-due or delinquent.
The delinquency rate is a statistical measure that indicates the percentage of loans with overdue payments within a loan portfolio. It is used to assess the financial health and risk exposure of the portfolio.
A discounted loan is a financial instrument that is offered or traded for less than its face value. It involves an initial discount from the loan's nominal amount, effectively making it cheaper for the borrower at inception.
Dissaving, or negative saving, occurs when consumer spending exceeds disposable income, often financed through accumulated savings or loans.
A downpayment is the initial upfront portion of the total amount due for the purchase of property or goods, generally paid in cash, with the remaining balance being financed through debt.
Drawdown refers to the drawing of funds against a bank loan or other credit facility. It involves disbursing the loan amount provided by the lender to the borrower in full or in parts over a specific period.
The total interest paid or earned in a year, expressed as a percentage of the principal amount at the beginning of the year. The Effective Annual Rate provides a clear picture of the actual annual cost or earnings, considering compounding periods during the year.
Eurobanking refers to the acceptance of deposits and the extension of loans denominated in currencies other than the currency of the country where the bank is located.
A Face Interest Rate is the percentage interest rate specified on the bond or loan document. It differs from the Effective Rate, which is a more meaningful yield figure reflecting the actual cost of borrowing.
Finance involves the practice of managing and manipulating money, the capital involved in a project, and obtaining loans for specific purposes.
A finance charge is a fee imposed for the privilege of deferring payment of a debt or for borrowing funds. It is commonly used in credit card transactions and loans.
A finance company provides various types of loans, typically at higher interest rates compared to traditional banks, often catering to ventures and individuals considered high risk.
A contract involving a financial obligation that represents a monetary asset to one party and a financial liability or equity instrument to another party. Examples include stocks, bonds, loans, and derivatives.
Financing involves the act of providing funds for business activities, making purchases, or investing. It enables companies to meet their objectives through various financial instruments like loans, investment, shares, or bonds.
A floating-rate loan has an interest rate that is not fixed and can fluctuate over the loan's tenure. These loans are often tied to short-term market indicators like the London Inter Bank Offered Rate (LIBOR).
In finance, a floor refers to the minimum interest rate set by the lender on a loan or other obligation. This ensures that the interest rate will not fall below a certain level, which provides a safety net for lenders' returns. It contrasts with a cap, which sets an upper limit on the interest rate.
The rate of interest that will apply to a loan or deposit beginning on a future date and maturing on a second future date. It is a crucial concept in financial markets for managing interest rate risk.
High credit refers to the maximum amount of credit that has been extended to a customer or a company within a specific time frame. This can apply both to banking loans and trade credit from suppliers in different financial contexts.
Understanding Hypothecation: A comprehensive guide to its definitions, applications, and implications in banking, shipping, and tax allocation.
Imputed interest refers to interest that is considered by tax authorities as having been paid or received even though no actual interest payment was made. It commonly applies in situations where the stated interest rate on a loan or financial instrument is considered insufficient or below market rates.
An institutional lender is a financial intermediary who invests in loans and other securities on behalf of depositors or customers. These institutions are heavily regulated to mitigate risks and play a crucial role in both the primary and secondary markets for loans and securities.
Interest is the charge applied for borrowing a sum of money, typically expressed as a percentage of the principal loan amount. Interest calculations can vary based on whether simple or compound interest is used, influencing financial decisions significantly.
Established by the Bretton Woods Conference of 1944, the IBRD helps finance post-war reconstruction and raise standards of living in developing countries through loans and loan guarantees. The IBRD is part of the World Bank Group and is owned by the governments of 189 countries.
An individual or firm that extends money to a borrower with the expectation of being repaid, usually with interest, creating debt in the form of loans. Lenders are paid off before stockholders in the event of corporate liquidation.
A letter provided to a bank by the parent company of a subsidiary applying for a loan, offering informal assurance without a formal guarantee of repayment responsibility.
Long-term debt, also known as long-term liability, refers to loans and financial obligations that are due in more than a year. These obligations often include bonds and notes payable, with periodic interest payments and the principal due upon maturity.
Net proceeds refer to the amount received from the sale or disposition of property, from a loan, or the sale or issuance of securities after the deduction of all costs incurred in the transaction.
A nonbank bank is an institution that provides most of the services of a traditional bank but is not a member of the Federal Reserve System and does not have a charter from a state banking agency.
A nonperforming asset (NPA) is a classification used by financial institutions for loans or advances that are in default or are in arrears on scheduled payments of principal or interest. These assets are not effectual in producing income and thus pose a risk to the financial health of lending institutions.
An Outstanding Balance is the amount of money currently owed on a debt. This figure represents the total unpaid portion of a loan, credit card, or other financial liability at any given time.
A banking loan on which the interest is more than 90 days overdue. After this grace period has elapsed, the borrower becomes liable for late charges.
Prepayment privilege refers to the right of a borrower to repay a loan before its scheduled maturity date without incurring penalties.
The principal amount is the face value of a financial obligation such as a bond or a loan that is required to be repaid at its maturity date, distinct from the interest accrued.
The rate of interest represents the cost of borrowing money expressed as a percentage of the principal amount. It is a fundamental concept in both personal and corporate finance, impacting loans, savings, investment decisions and the overall economy.
A recourse loan is a type of loan in which the lender has the right to pursue the borrower's other assets beyond the collateral if the borrower fails to meet the repayment terms.
A Reference Rate is an interest rate benchmark used as a basis for pricing financial products such as loans, mortgages, and derivatives. It is crucial for consistent pricing across financial markets.
Refinancing involves obtaining new funding to pay off an existing obligation, typically done to secure a more favorable interest rate or reduce monthly payments.
A regional bank specializes in collecting deposits and making loans within a specific region of the country, differentiating it from money center banks which operate on a national and international level.
A revolving bank facility, also known as standby revolving credit, is a flexible loan agreement between a bank or a group of banks and a company, which allows the company to draw and repay funds multiple times during the loan's term.
Debt obligation, including bonds, that is guaranteed by the pledge of assets or other collateral.
Simple interest is a quick and easy method for calculating the interest charge on a loan or the interest earned on an investment, based on the principal amount, interest rate, and the time period involved.
Finance professionals often use the Sterling Overnight Index Average (SONIA) as the benchmark interest rate for loans and financial contracts denominated in pounds sterling. Discover its definition, application, and influence on global finance.
Usury refers to the practice of charging an interest rate on loans that exceeds the legal maximum set by state law. The limits on usury can vary based on the type of lender and loan, and federal laws sometimes override these state limits under specific conditions.
