Credit & Debt Terms

A 401(k) loan lets a participant borrow from their own workplace plan balance and repay it with interest into that same account. Because it is a loan rather than a distribution, nothing is taxed: unless it defaults or is offset when you leave, which are two legally different events with different consequences.

Accrued interest is interest that has been earned, or has been incurred, but has not yet been paid. On a bond it is the interest built up since the last coupon date; on a loan it is the interest that has run up since the last payment.

Amortization is the process of retiring a debt through scheduled payments, each of which pays the interest accrued since the last one and applies the remainder to the balance. The payment stays level and the split inside it does not, which is why an early payment on a long-dated loan is mostly interest and a late one is mostly principal.

The annual percentage rate is the regulated measure of what credit costs, expressed as a yearly rate that relates what the borrower receives to what the borrower pays. What it folds in beyond interest depends on the kind of credit, which is why comparing APRs is sound advice on a mortgage and incomplete advice on a credit card.

An authorized user is someone the account holder permits to use a credit card account without being contractually liable for the balance. Because the user has actual authority, their charges are never "unauthorized use," so the $50 liability cap never applies and the account holder owes every dollar.

An auto loan is an installment loan used to buy a vehicle and secured by that vehicle, so the lender's lien is recorded against the title and non-payment can end in repossession. It is the one common consumer loan where the collateral reliably loses value faster than the balance falls.

An auto title loan is consumer credit secured by a lien on a vehicle the borrower already owns, where the lender takes the certificate of title and the borrower keeps driving the car. Its defining feature is negative: the money is not being used to buy the vehicle, and that is exactly what puts it inside two federal rules that purchase loans escape.

The average daily balance is the figure a credit card issuer applies its interest rate to: the sum of what you owed on each day of the billing cycle, divided by the number of days in the cycle. Federal regulation names it as one of five balance computation methods an issuer may disclose by name.

A balance transfer moves what you owe on one credit card onto another, usually to take advantage of a temporary low or zero promotional rate. It is a new extension of credit on the receiving card rather than a payment by you, it normally carries an upfront fee, and federal rules set a floor under how long the promotion has to last.

Bankruptcy is a federal court process that reorders or erases what you owe, under title 11 of the United States Code. It is not one procedure but several, and for individuals the two that matter are Chapter 7, which liquidates, and Chapter 13, which reorganizes.

A bridge loan is short-term financing that lets a buyer draw on the equity in a home they have not sold yet, in order to buy the next one. Regulation Z defines it by its term, 12 months or less, and excludes it from the ability-to-repay determination that governs an ordinary mortgage.

A business credit card is a revolving credit card issued for business spending. It usually requires the owner's personal guarantee, and many of the consumer protections that apply to personal cards do not fully apply to it.

A business credit score is a commercial bureau's rating of how reliably a business pays its suppliers and lenders. There is no single score and no single scale, and the legal protections that surround a personal credit report mostly do not apply to a business one.

A business line of credit is a revolving facility a business can draw on repeatedly up to a limit, paying interest only on what is drawn. Unlike a term loan it can be repaid and redrawn, and unlike consumer credit it carries almost none of the federal disclosure protections.

Buy now, pay later is point-of-sale financing that splits a purchase into a short series of payments, classically four, with no interest if paid on time. Whether it carries the protections that come with other consumer credit turns on how the individual plan is structured.

Cancellation of debt is the release of a borrower from an obligation to repay, and the released amount is ordinarily taxable income. Several exclusions can remove it from income, and most of them charge a price in future tax benefits.

A car lease is a contract to use a vehicle for a fixed period in exchange for periodic payments, with the vehicle returned at the end unless you buy it. In federal law it is a bailment rather than an extension of credit, which is why it carries no annual percentage rate and cannot be compared to a loan on rate alone.

A cash advance is credit drawn from a credit card as cash or its equivalent rather than as a purchase. It normally carries its own higher interest rate, a fee charged upfront, and no grace period, so interest generally starts on the day of the transaction.

Cash back is a credit card reward credited as a percentage of spending and denominated in dollars rather than in program points. Because the unit is a dollar, there is no valuation step and no award chart to move, which is the whole of its advantage.

A cash-out refinance replaces an existing mortgage with a larger one and pays the difference to the borrower. Legally it is an ordinary refinancing, but lenders and mortgage investors treat it as a separate product with its own seasoning rules, its own loan-to-value ceiling, and its own definition of what counts as taking cash out.

Chapter 7 bankruptcy is the liquidation chapter of the Bankruptcy Code. A trustee is appointed to sell any property no exemption protects, most remaining unsecured debt is discharged within months, and eligibility is screened by an income-based means test.

Chapter 11 bankruptcy is the reorganization chapter of the federal Bankruptcy Code, under which a business keeps operating while a court-supervised plan restructures what it owes. For the company's investors the central fact is the order of payment: creditors are paid before shareholders, and a confirmed plan usually cancels the old common stock and hands the new shares to the creditors.

Chapter 13 bankruptcy is the reorganization chapter available to an individual with regular income. The debtor keeps their property and performs a court-approved plan lasting three or five years, and it is the only chapter with a stay that protects the people who cosigned.

A charge-off is a creditor's own accounting decision to reclassify a debt as a loss on its books. It changes the creditor's ledger rather than the borrower's obligation, so it cancels neither the debt, nor any lien behind it, nor the right to sell the account or sue on it.

A civil judgment is a court's ruling that one party owes another a sum of money, and it is the thing that turns a disputed debt into an enforceable one. Federal law leaves most of what happens next to the states, but it protects directly-deposited Social Security and similar benefits in a bank account automatically.

A cosigner is someone who takes on liability for another person's debt without getting anything in return. Federal law requires most consumer lenders to hand a cosigner a specific written notice first, and the notice says plainly that the creditor can collect from the cosigner without trying the borrower first.

A credit builder loan reverses the usual order of a loan. The lender holds the money in a locked account, the borrower makes the payments first, and the funds are released only as the loan is repaid. The point is the reported payment record rather than the cash.

A credit bureau is a company that collects information about consumers from lenders and other sources and sells it to businesses with a permitted reason to see it. Federal law calls it a consumer reporting agency, defines it by what it does rather than by name, and therefore reaches far more companies than the three most people can list.

A credit card is a device that lets you draw repeatedly on a revolving line of credit, up to a limit, and repay it over time. Federal law defines it broadly enough to cover things that are not cards, because the rules attach to the account rather than to the plastic.

A credit card annual fee is a recurring charge for holding the account, disclosed under Regulation Z as a fee for issuance or availability. Federal rules cap total required first-year fees at 25 percent of the opening credit limit and give a right to reject an increase, with one exception that covers the most common case.

Credit card churning is the practice of repeatedly opening cards to collect sign-up bonuses and then sidelining or closing them. No statute or regulation defines the word, and the Consumer Financial Protection Bureau's own concern runs the other way: at the undisclosed conditions issuers use to deny the bonuses.

Credit card debt payoff is the process of clearing revolving credit card balances, which usually means choosing a repayment method, understanding why minimum payments barely move the balance, and sequencing the work so the highest-cost debt is dealt with first.

A credit card grace period is the window in which purchases from the last billing cycle can be repaid without any interest, and it exists only while the statement balance is paid in full. Federal law does not require a card to offer one; it requires the card to disclose if it does not.

Credit card rewards are the cash back, points or miles an issuer credits for using a card. A rewards balance is a liability of the program rather than money you hold, which is why its value can be reduced, and why the four documented ways a program fails all involve what happens between earning and redeeming.

Credit counseling is a service in which a counselor reviews a household's income, expenses and debts and sets out the options, one of which may be a debt management plan. The federal regime that approves these agencies sits in the Bankruptcy Code, and that approval is narrower than it looks.

A credit dispute is a notice to a credit bureau that an item in your file is inaccurate or incomplete. It starts a statutory clock: the bureau has 30 days to reinvestigate, and anything it finds wrong or cannot verify has to be deleted or corrected.

A credit freeze restricts a credit bureau from releasing your credit report, so a lender that cannot pull your file will not open an account in your name. It is free, it never expires on its own, and it comes with ten statutory exceptions that decide how much protection it actually buys.

Credit history is the accumulated record of how you have borrowed and repaid over time, which is the raw material a credit report documents and a credit score summarizes. The version of the problem most people never hear about is having too little of it to be measured at all.

Credit invisible is the Consumer Financial Protection Bureau's term for a consumer with no credit record at any nationwide credit reporting agency. It is a stricter category than "thin file," and the Bureau's research on how people leave it contradicts most of the advice given about it.

A credit limit is the maximum balance a card issuer will let an account carry. Federal law does not set the number, but it does govern how an issuer must arrive at it, and it gives cardholders an opt-in right that decides what happens when a transaction would push the balance past it.

Credit mix is the range of account types on a credit report, and Fair Isaac states that it determines 10 percent of a FICO Score. It is the smallest of the five FICO categories, and Fair Isaac's own guidance is not to open credit in order to improve it.

Credit monitoring is a service that watches your credit file and tells you when it changes. It detects rather than prevents, it is a commercial product almost everywhere, and the one place federal law requires it free is for active duty service members.

A credit repair scam is a deceptive or illegal credit-repair operation, one that charges upfront fees, promises to erase accurate negative information, or otherwise violates the federal law that governs the industry.

A credit report is the file a consumer reporting agency keeps on how you have handled borrowed money. The Fair Credit Reporting Act calls it a "consumer report" and defines it far more broadly than credit, which is why the same rules cover tenant screening, insurance, and employment files.

A credit score is a three-digit number, most commonly on the FICO® Score scale of 300 to 850, that summarizes how reliably you've handled borrowed money. Lenders use it to price loans, and landlords, insurers, and utilities often check it too, which makes it one of the most consequential numbers attached to your name.

Credit utilization is the share of your available revolving credit that you are currently using, calculated as reported balances divided by credit limits. Because it is recomputed from each month's reported balances rather than built up over years, it is the fastest-moving input to a credit score.

A credit-based insurance score is a number built partly or entirely from a consumer's credit history that insurers use to estimate how likely that person is to file a claim. It is not a credit score, it predicts a different thing, and what an insurer may do with it is limited by state law.

The debt avalanche is a payoff method that orders debts by interest rate, highest first, and directs every spare dollar at one of them while paying only the minimum on the rest. Given a fixed total monthly payment it minimizes total interest by construction, and its practical weakness is that the rates it orders by can move.

Debt collection is the business of pursuing payment on a debt that is already past due, usually by a company that is not the original creditor. Which federal rules apply turns on who is calling rather than on what they say, and the same script from two different callers can carry very different obligations.

A debt collector is a person the Fair Debt Collection Practices Act regulates, defined at 15 USC 1692a(6) by two independent tests and narrowed by six exclusions. Whether a caller meets that definition decides which federal rules bind them, so it is usually the first question worth answering.

Debt consolidation is the act of taking on one new obligation to pay off several existing ones, so that many payments become a single payment. It is a category rather than a product, it moves debt rather than reducing it, and the only honest way to judge an offer is total cost against total cost.

A debt consolidation loan is an unsecured installment loan taken out for one purpose, paying off existing balances. Mechanically it is a personal loan, and what is distinctive about it is how the amount is set, who receives the money, and what happens to the accounts it clears.

A debt management plan is an arrangement administered by a credit counseling agency in which you make one monthly payment to the agency and it distributes the money to your creditors on concessions they have agreed to. It is not new credit and it does not reduce the principal.

A debt relief scam is a deceptive debt-settlement or debt-relief operation that makes false promises, charges illegal upfront fees, or tells consumers to stop paying creditors in ways that leave them worse off.

Debt settlement is an arrangement in which a creditor accepts less than the full balance to close an account. It reduces what is owed, unlike consolidation, and it carries two costs people underestimate: the damage done while the account is deliberately left unpaid, and tax on the forgiven amount.

The debt snowball is a payoff method that orders debts by balance, smallest first, and directs every spare dollar at one of them while paying only the minimum on the rest. The name describes the mechanic: each cleared balance releases its payment into the next target, so the amount attacking one debt grows as accounts close.

A debt validation letter is the everyday name for a written notice a consumer sends a debt collector disputing a debt or asking who originally owned it. The phrase appears in neither the Fair Debt Collection Practices Act nor Regulation F, and the confusion it causes is that the same words are also used for the notice the collector must send the consumer.

A debt-to-income ratio is your required monthly debt payments divided by your gross monthly income. Lenders use it to judge capacity to take on more debt, and because it runs on income before tax it flatters affordability.

A deed in lieu of foreclosure is a voluntary transfer of the property to the lender in place of a foreclosure. The lender does not have to accept one, and a junior lien is usually the reason it will not.

Default risk is the specific chance that a borrower, whether a company, a government, or an individual, fails to repay a debt as promised. It is the core component of the broader concept of credit risk, and it is what a bond's credit rating and yield spread are largely trying to price.

A deficiency balance is what a borrower still owes after collateral has been seized and sold for less than the debt. It is larger than the naive gap, because the costs of taking and selling the property come out of the sale proceeds before the debt does.

Delinquency is the state of owing a payment that has passed its contractual due date. The clearest federal definition treats it as a period of time rather than an event, which is why paying part of what is behind does not end it.

A derogatory mark is a negative entry on a credit report, such as a late payment, a collection account, a charge-off, or a public record. It is industry vocabulary rather than a defined legal term, and the one thing every variety has in common is that paying does not erase it.

A Direct Subsidized Loan is a federal student loan for undergraduates with demonstrated financial need on which the government pays the interest while the student is enrolled at least half-time, during the six-month grace period, and during qualifying deferments. It is the cheapest federal borrowing available to an undergraduate.

A Direct Unsubsidized Loan is a federal student loan on which the borrower owes the interest from the day it is disbursed, including while enrolled. It is not need-based, which makes it the federal loan almost every student can get, and since 1 July 2026 it is the only federal loan available to most graduate students.

Eviction is the legal process a landlord must follow to remove a tenant from a rental property. It runs through written notice, a court filing, a judgment, and enforcement by a law officer, and a landlord who bypasses it with a lockout or utility shutoff is doing what state landlord-tenant law generally treats as an illegal self-help eviction.

Experian Boost is a free opt-in product from Experian that adds eligible bill payments, such as phone, utility, rent and streaming, to your Experian credit file. It moves one of your three credit files and, on Experian's own account, one score version.

An extended repayment plan is a federal student loan plan that stretches repayment over as much as 25 or 30 years to lower the monthly payment. It is the only plan on the legacy federal menu with a minimum balance requirement, and it is available only for Direct Loans made before July 1, 2026.

The Fair Credit Reporting Act is the 1970 federal statute governing consumer reporting. It regulates three different actors with three different duty sets, and the half that gets least attention is the duties it puts on the businesses that use your file.

The Fair Debt Collection Practices Act is the 1977 federal statute that regulates how debt collectors may pursue consumer debts. It bans three broad categories of conduct, restricts where a collector may sue, and is implemented by the Consumer Financial Protection Bureau's Regulation F.

A federal student loan is a loan made directly by the United States government under the William D. Ford Federal Direct Loan Program. What distinguishes it from private borrowing is not the interest rate but a set of statutory borrower rights, and since 1 July 2026 which rights apply depends on when the loan was made.

A FICO® Score is a credit score produced by Fair Isaac Corporation, the model most American lenders use. Base FICO Scores run from 300 to 850, and you have several of them at once because each credit bureau runs the model against its own copy of your file.

Foreclosure is the legal process by which a lender enforces its lien on real property when the loan is not paid, ending in a forced sale. Almost every rule that governs it is state law, but one federal rule sets a floor on how soon it can start.

A fraud alert is a statement placed in your credit file that tells any lender pulling it to verify who is applying before opening credit in your name. Unlike most identity-theft remedies it is available before anything has happened to you, and what it obliges a lender to do depends on which of the three alerts you placed.

A free credit report is a copy of your credit file that a consumer reporting agency must give you without charge. Federal law creates several separate entitlements to one, and the once-a-year version is the floor rather than the whole of it.

GAP covers the difference between what an insurer pays for a vehicle that is totaled or stolen and what the borrower still owes on it. The name covers two legally different products, an insurance policy and a waiver written into the finance agreement, and which one you bought decides who regulates it and how a refund works.

A goodwill letter is an unpaid written request asking an original creditor to remove an accurate late payment from a credit report as a courtesy. Nothing obliges a creditor to agree, and the reason most give for refusing describes the law less accurately than it sounds.

A Grad PLUS loan is a Federal Direct PLUS Loan made to a graduate or professional student, limited only by cost of attendance minus other aid and granted subject to a credit check. It closed to new borrowers for instruction beginning on or after July 1, 2026, and remains available for up to three more academic years to students already enrolled and already borrowing.

A graduated repayment plan is a federal student loan plan whose payments start low and rise in steps over the term, on the assumption that the borrower's income will rise with them. It is available only for Direct Loans made before July 1, 2026.

A guarantor is someone who makes a separate promise to answer for another person's debt if that person does not pay. What the guarantor is actually liable for, and whether the lender must pursue the borrower first, is set by the guaranty document and by state contract law rather than by any general rule.

A hard inquiry is the record left when a lender pulls your credit report because you applied for credit. It is the kind of inquiry that can move a score, and Fair Isaac says one additional inquiry takes less than five points off a FICO Score for most people.

A home equity line of credit is a revolving credit plan secured by your home, with a limit you draw against as needed and a variable rate tied to a public index. Federal law gives it its own regime, and the most important thing in that regime is the gap between what a lender may do to your credit limit and what it may do to a balance you already owe.

A home equity loan advances a lump sum secured by a home you already own, repaid on a fixed amortizing schedule, and usually recorded as a junior lien behind the existing mortgage. It carries a three-day right to cancel that a purchase mortgage does not, and none of the protections written for home equity lines of credit apply to it.

Identity theft is the use of someone else's personal information to obtain credit, goods, services or benefits. Federal law gives a victim a specific set of remedies rather than a general right to complain, and nearly all of the strong ones depend on one document: an identity theft report.

Income-Based Repayment is the federal student loan plan that sets the monthly payment from the borrower's income and family size and cancels the remainder after 20 or 25 years. Of the four legacy income-driven plans it is the only one still open to new enrollment and the only one to survive the 2028 wind-down, alongside the newer Repayment Assistance Plan.

Income-Contingent Repayment is the oldest federal income-driven repayment plan, and the phrase also names the broader statutory category the plan sits in. The plan is closed to new enrollment and ends on July 1, 2028, with one live exception that makes it the only income-driven route for a particular group of parent borrowers.

Income-driven repayment is the family of federal student loan plans that set the monthly payment from the borrower's income and family size rather than from the balance, and cancel whatever is left at the end of a fixed term. The family is in the middle of a statutory wind-down from five plans to two.

An installment loan is credit advanced as a fixed sum and repaid in scheduled payments over a set term, so the balance can only fall. It is a market label covering everything from a car loan to a mortgage, and its legal identity is Regulation Z's closed-end credit.

Interest is the price paid for the use of money, expressed as a rate per year and applied to a balance over time. It is one mechanism seen from two sides: what a lender earns is what a borrower pays.

An interest rate hike is an increase in the central bank's target for its benchmark short-term rate, made to slow borrowing and cool inflation. It makes debt more expensive and safe savings more rewarding.

An introductory rate is a promotional interest rate offered when a credit card account is opened, lasting a stated period before a disclosed go-to rate takes over. It is the legal category behind the "0% intro APR" on card advertisements, and it does not have to be zero.

Invoice factoring is the sale of a business's unpaid invoices to a third party at a discount, in exchange for most of the money now. California's statute defines it as the purchase of "a legally enforceable claim for payment" for work already delivered, which is what separates it from an advance against future sales.

An IRS installment agreement is a written arrangement to pay a federal tax balance in monthly payments instead of at once. Penalties and interest keep running throughout, but the agreement stops levy by statute and cuts the late-payment penalty rate in half for a taxpayer who filed on time.

IRS interest is the statutory charge for owing tax late, and the statutory payment for having overpaid. It is not a penalty, which is why penalty relief never removes it, it compounds daily, and neither an extension nor an installment agreement stops it running.

A late payment is a required payment that reaches the creditor after its due date. On a credit card the consequences arrive on a schedule rather than all at once, and the two consequences people most often treat as one, the fee and the mark on the credit report, are about a month apart.

A lease buyout is a lessee exercising the option to purchase the leased vehicle rather than returning it. Regulation M calls it a purchase option, requires the price to be disclosed as a sum certain when the lease is signed, and requires the lessor to say affirmatively when there is no option at all.

Length of credit history is the FICO Score category that measures how long credit accounts have existed, and Fair Isaac states it at 15 percent of a score. It reads the age of the oldest account, the age of the newest, and the average across all of them.

Leverage in investing means holding more exposure than the money committed, with the difference borrowed. It multiplies the percentage result in both directions, but it does not treat the two directions equally, because a large enough loss ends the position instead of reversing later.

A lien is a legal interest in specific property that secures a debt or an obligation. Liens arise in three different ways, by agreement, by statute, or by court judgment, and how one arose decides whether you consented to it and what it takes to get rid of it.

Loan default is the legal status a credit agreement declares when the borrower breaks it. Individual statutes define it for particular products, but for consumer credit generally the agreement supplies the definition, and its signature consequence is acceleration, meaning the whole balance becomes due at once.

A loan modification permanently changes the terms of an existing mortgage by agreement with the servicer, rather than replacing it with a new loan. It is the main way a borrower in lasting trouble keeps the house.

Loan principal is the amount borrowed, as distinct from the interest charged for borrowing it. It is not necessarily the amount that reaches you, and it is not the amount it would take to pay the loan off today.

A loan shark is a lender who makes or collects loans on the understanding that violence or other criminal means may be used against the borrower. The phrase does not appear in the federal chapter that reaches the conduct, but that chapter criminalizes the thing: 18 USC chapter 42 makes both making and collecting such a loan a federal offense carrying up to twenty years.

A loan term is the length of time a loan is scheduled to run, from the day it is made to the day the last payment is due. The same two words are also used loosely for a loan's conditions, and federal mortgage disclosure uses both senses on a single page.

A loan-to-value ratio is the loan balance divided by the value of the property or vehicle securing it, expressed as a percentage. It is the lender's measure of how much of the collateral it has advanced, and the argument is almost never about the loan amount but about which value goes in the denominator.

A margin account is a brokerage account in which the firm lends the investor money to buy securities, using the account itself as collateral. It increases what can be bought and it magnifies losses, and three of its consequences are set by the lender rather than chosen by the borrower.

A margin call is a brokerage firm's demand that an investor add cash or securities to a margin account after its equity falls below the required minimum. The firm can also simply sell holdings to cover the shortfall itself, without asking first and without waiting for any deadline it may have given.

Medical debt is money owed to a healthcare provider, or to whoever has bought or been assigned that obligation, for care already delivered. It behaves unlike every other consumer debt because in most cases it was never an extension of credit in the first place.

A merchant cash advance is a lump sum a business receives in exchange for the right to a percentage of its future sales, up to a fixed ceiling. It is priced as a total amount owed rather than as an interest rate, and federal consumer credit disclosure rules do not reach it.

Microfinance is the practice of supplying very small loans, and often savings, insurance and payment services, to households and businesses that conventional banks will not serve. Its defining problem is that the cost of making a loan does not shrink in proportion to the size of the loan.

A minimum payment is the smallest amount a lender will accept in a given period to keep an account current. On a credit card it is set by the issuer's own formula, and federal law responds not by regulating its size but by forcing the statement to show what paying it would cost.

A mortgage is a loan to buy real estate or to borrow against real estate you already own, secured by the property itself. Two documents create it, and the security is what makes default a foreclosure rather than an ordinary collections matter.

Mortgage forbearance is an agreement with the servicer to pause or reduce mortgage payments for a set period. It pauses the payment and not the debt, so the only question that decides whether it helps is how the missed amounts have to come back.

A mortgage note is the borrower's signed promise to repay a home loan on stated terms. It is a separate document from the one that pledges the house, and it is the document that makes the debt personal.

A mortgage preapproval is a letter from a lender saying it is generally willing to lend up to a stated amount on stated assumptions. It is not a loan offer, and the word on the letter tells you very little, because lenders use preapproval and prequalification to mean different things.

Negative equity is owing more on a secured loan than the thing securing it is worth. It arrives two different ways, as the expected consequence of financing a depreciating asset or as the unexpected consequence of a market falling under a durable one, and in neither case does the condition by itself change what the borrower owes each month.

New credit is the smallest of the five FICO Score categories, which Fair Isaac states at 10 percent of a score, covering recently opened accounts and recent inquiries. Its more useful property is indirect: opening an account moves three other categories at the same time, in different directions.

An offer in compromise is an agreement under which the IRS accepts less than the full amount of a tax debt and treats the liability as satisfied. It is available on three defined grounds, it costs a fee and a down payment to apply, and the IRS accepts roughly one in seven of the offers it receives.

An origination fee is what a lender charges for making a loan, whether deducted from the money advanced or collected at closing. Regulation Z's definitions do not include one, so the same words are reached by three different regimes, and for tax purposes the charge may be interest or not depending on what it bought.

A parent PLUS loan is a federal Direct PLUS Loan made to a parent to pay for a dependent undergraduate's education. The parent is the borrower, the debt is the parent's alone, and it is the one federal student loan with essentially no income-driven repayment option of its own.

A pawn loan is credit secured by an item the lender physically holds for the whole term. In the version federal regulation defines, the lender's only remedy if the borrower does not redeem the item is to keep it, and that feature, non-recourse, is unusual among high-cost loans: there is no shortfall to chase and no collection afterward.

Pay As You Earn is a federal student loan repayment plan that charges 10 percent of discretionary income and cancels the balance after 240 payments. It is closed to new enrollment, and it ends for everyone on July 1, 2028, so the live question for the borrowers still on it is what to move to.

Pay for delete is an arrangement in which a debt collector agrees to remove a collection account from a credit report in exchange for payment. The information being deleted is accurate, which is what separates it from a dispute and what makes its legal footing awkward.

A payday loan is a small, short-term, high-cost loan due in a single payment around the borrower's next payday, secured not by property but by the lender's authority to take payment from the borrower's bank account. Federal rules reach it as a "covered loan" defined by a 45-day repayment horizon.

Payment history is the record of whether you have paid your credit obligations as agreed, and Fair Isaac calls it the largest single input to a FICO Score at 35 percent. It is a monthly snapshot of each account's status rather than a log of individual payments, which is why paying a few days late usually leaves no trace.

Peer-to-peer lending is an arrangement in which individuals lend money to other individuals or small businesses through an online platform, in exchange for interest. For the lender it is an investment whose return depends on borrowers repaying, and it carries no deposit insurance.

A personal loan is a fixed sum of money borrowed without collateral and repaid in equal installments over a set term. "Personal loan" is a market label rather than a legal category. In federal law it is closed-end credit, and that classification explains most of what makes it behave differently from a credit card.

Piggybacking credit is paying a company to have you added as an authorized user on a stranger's well-maintained credit card account, without any actual access to it, in the hope that the account's history improves your score. The Federal Trade Commission has brought a Credit Repair Organizations Act case over it.

A policy loan is an advance an insurer makes to the owner of a cash-value life insurance policy, secured by the policy alone. There is no application, no credit check and no repayment schedule, because the insurer is lending against money it already owes.

Predatory lending is a descriptive term for lending that is designed to profit from a borrower's failure to repay on the original terms rather than from repayment. Federal consumer credit law does not use the phrase in its definitions; what it defines instead are specific labels with specific numerical triggers.

A prepayment penalty is a charge imposed for paying off all or part of a loan before it is due. On a mortgage, federal rules allow one only in narrow circumstances, cap it, limit it to the first three years, and require the lender to also offer a version of the loan without one.

The prime rate is the reference interest rate large banks use as a base for pricing short-term loans to their most creditworthy borrowers. It moves in step with the Federal Reserve's benchmark rate and sets the floor under many variable consumer loans.

A private student loan is a consumer credit contract made by a bank, credit union or other lender to pay for education, underwritten on the borrower's or a cosigner's credit. Its terms come from the contract and from the Truth in Lending Act rather than from the Higher Education Act.

Refinancing is taking out a new loan to pay off an existing one, on different terms. It is a new loan rather than an amendment to the old one, which is why it has its own closing costs, its own clock, and in some cases a three-day right to cancel that the original loan never had.

Rent reporting is an arrangement under which a landlord, property manager, or third-party service furnishes rental payment history to a consumer reporting agency. It is opt-in, it usually reaches fewer than all three nationwide agencies, and where it reports the good months it generally reports the bad ones too.

Repossession is a secured lender taking back the property that secures a defaulted loan. In most states it can be done without going to court and without advance judicial process, which is the fact about it that surprises people most.

Revolving credit is an arrangement in which you may borrow repeatedly up to a limit, and the credit you repay becomes available to borrow again. That replenishing feature is what the word "revolving" names, and it is the single element that separates this kind of credit from a loan.

An SBA loan is a small-business loan made by a private lender and partly guaranteed by the U.S. Small Business Administration. The guarantee lowers the lender's risk, which lets small businesses borrow on terms they might not get otherwise. The main programs are the 7(a), the 504, and microloans.

A secured credit card is a real credit card whose approval rests on a refundable security deposit, usually equal to the credit limit. The deposit is collateral rather than a prepayment, so the account can still carry a balance and charge interest while the deposit sits untouched.

A secured debt is one the lender can enforce against a specific asset, because the loan agreement gave it a lien on that asset. The lien is the whole difference, and it is also the thing that survives when the debt behind it is wiped out in bankruptcy.

The Secured Overnight Financing Rate is the benchmark that replaced US dollar LIBOR as the reference rate under variable-rate loans and financial contracts. The New York Fed publishes it every business day from actual overnight borrowing secured by Treasury securities.

The Servicemembers Civil Relief Act is the federal statute that suspends or softens a range of civil obligations while a person is in military service: capping interest on debts taken on before service at 6 percent, requiring court orders for evictions and repossessions, allowing leases to be terminated on orders, and letting a court pause a lawsuit a servicemember cannot attend.

A short sale is a sale of a home for less than the amount owed on it, which every lienholder has to approve because each is agreeing to release its lien for less than full payment.

Simple interest is interest calculated on the original principal only, with no interest charged on interest. The same phrase also names a lending structure, in which interest accrues on the balance you actually owe from day to day rather than being computed in advance and written into the note.

A soft inquiry is a look at your credit report that was not an application for credit, and it does not affect your scores. The reason a lender cannot see the promotional ones is not industry convention but a specific provision of the Fair Credit Reporting Act.

A standard repayment plan is a federal student loan plan that charges a fixed monthly payment large enough to clear the balance by the end of a set term. Three different plans share that name, and which one a borrower is on decides whether the payments count toward Public Service Loan Forgiveness.

The statute of limitations on a debt is the period, set by state law, within which a creditor may sue to collect it. When it expires the debt does not disappear: it becomes time-barred, which stops a debt collector from suing or threatening to sue, and stops very little else.

Federal student loan consolidation combines one or more federal student loans into a single new Direct Consolidation Loan, with a fixed interest rate that is the weighted average of the underlying loans rounded up to the nearest one-eighth of a percent. It stays inside the federal system, and it is the transaction people commonly confuse with private refinancing.

A federal student loan enters default when a borrower has been at least 270 days delinquent on the required payments. Default gives the government a specific set of collection powers that operate without a court judgment and blocks the borrower from further federal student aid until it is cured.

A student loan deferment is a formal postponement of payments on a federal student loan, granted for one of the specific circumstances Congress listed in the statute. On subsidized loans the government pays the interest during the pause; on unsubsidized loans and PLUS loans the interest accrues and capitalizes at the end.

A student loan forbearance is a temporary pause or reduction in payments on a federal student loan that a servicer grants when a borrower does not qualify for a deferment. Interest continues to accrue on all loan types during forbearance, unlike a subsidized deferment, and is owed on top of the balance.

Capitalization is the moment unpaid interest that has built up on a student loan is added to the principal balance, after which interest is charged on the larger figure. On federal Direct Loans the regulation now lists a single trigger; on private student loans the triggers are whatever the promissory note says.

Student loan refinancing is taking out a new private loan to pay off existing student loans, usually to get a lower interest rate. Where the loans being paid off are federal, the transaction is a one-way door: every federal right on that debt ends permanently and no mechanism exists to get it back.

Student loan rehabilitation is the route out of federal student loan default in which the borrower makes nine voluntary, reasonable and affordable monthly payments over ten consecutive months. It is the only cure that has the record of default removed from the borrower's credit history.

A tax levy is the IRS actually taking property to satisfy an unpaid federal tax debt, as distinct from the lien, which is only a claim against it. It reaches wages, bank accounts and most other assets, and it is preceded by notices that carry a hearing right.

A federal tax lien is the government's legal claim against everything a taxpayer owns, securing an unpaid federal tax debt. It arises automatically by operation of law, and the public notice the IRS files about it is a separate thing from the lien itself.

A teaser rate is a starting rate set below the rate that will actually apply, designed to expire. It is a marketing label rather than one legal category, and it turns up on credit cards, adjustable-rate mortgages and promotional savings accounts, each governed by a different rule with different protections.

A thin credit file is a credit record with too little information for a scoring model to work with. Fair Isaac publishes the three conditions a report must meet before a FICO Score can be produced at all, and they are about timing rather than about how many accounts you have.

Travel rewards are credit card points or miles redeemable for flights, hotels and other travel. Unlike cash back they are denominated in the program's own unit, and the redemption value is usually set by a third party the cardholder never contracted with directly.

The Truth in Lending Act is the 1968 federal statute that requires consumer credit terms to be disclosed in a standard form. It regulates information rather than price, and it does not cap interest rates.

Unsecured debt is money owed with no collateral behind it, so the lender's only remedy is against you rather than against a thing. That is why the path runs through a lawsuit, and why federal law caps how much of a paycheck a judgment can reach.

Usury is charging interest above the maximum the applicable law allows. There is no general federal ceiling in the United States, so the ceilings are state law, and the main thing federal law does is decide which state's ceiling applies to a bank.

VantageScore is a credit scoring model built by a joint venture of the three nationwide credit bureaus. Since version 3.0 its scores run 300 to 850, the same range as a base FICO Score, which is why a free score from an app is so often mistaken for the number a lender will use.

Velocity banking is a marketed debt-payoff routine that uses a home equity line of credit to make lump-sum payments against a mortgage, then routes income through the line to repay it and repeats. It is not a recognized financial term, and the arithmetic turns on the gap between the two interest rates.

Wage garnishment is a legal procedure that requires an employer to withhold part of an employee's pay and send it to a creditor. The order is served on the employer rather than on the employee, which is why the employee cannot stop it by asking payroll to stop.

Zero liability protection is a card network's promise that a cardholder will not be held responsible for unauthorized charges. It is a policy rather than a law, it comes with stated exclusions and conditions, and it sits on top of a statutory floor that an agreement cannot lower.

Zombie debt is an old obligation, usually charged off years earlier and sold on, that reappears when a new owner starts collecting. The phrase names a pattern rather than a legal category, and three legally different things get filed under it.