20 Terms to Know for Financial Literacy Flashcards
Annual Percentage Rate (APR)
The yearly interest rate charged on loans or credit, including fees.
Compound interest
Interest calculated on both the initial principal and accumulated interest.
Asset
Valuable property or item.
Beneficiary
Person who receives benefits.
Budget
Income and expense plan.
Credit
If you have a credit card or loan, you have credit, which is money a lender provides that you are obligated to pay back. In banking, credit also refers to a transaction that comes into your account, such as a deposit or interest you earn on deposits.
Credit report
A credit report summarizes your credit activity and history to help lenders determine whether to extend credit to you and what interest rate to offer. Credit reports may also be used by other entities, such as insurance companies, landlords, and utility companies to help them render decisions.
Credit score
Your credit score is basically a numerical calculation that helps lenders determine how likely you are to pay back money you borrow.
Debt
Debt is the amount of money you owe to a lender or person.
Debt consolidation
If you have multiple types of debt, such as credit cards and personal loans, lenders may offer you credit to help you consolidate multiple loans into one loan with one payment. Consolidating debt can help simplify your finances and maybe even lower the amount of interest you have to pay. Debt consolidation can help you save on interest, but it won’t cancel your debt; you still have to pay back the money you owe.
Debit
A debit is a transaction that goes out of your account. Debits include withdraws, transfers out of your account, and bill payments.
Home equity
Home equity is the actual amount of your home that you own. It’s the difference between the value of your home and the amount you owe to a lender. For example, if your home is worth $400,000 and you owe $250,000 on your mortgage, the equity you have in your home is $150,000.
Interest
This is the fee that financial institutions charge to lend you money. With savings, it refers to the money banks pay you when you deposit money.
Liability
A liability is a debt or obligation you owe, such as the amount you owe on your mortgage or car loan.
Net worth
Your net worth is the difference between your assets and liabilities.
Principal
In borrowing, principal is the amount of money a lender grants you that you agree to pay back. In savings or investing, principal is the amount of money you contribute.
Repayment
This is the time frame that you have to pay back money you borrow. For example, if you have a 30-year mortgage, your payments will be structured so that your loan is paid back in 30 years.
Revolving line of credit
That is a type of credit that lets you borrow money when you need it and pay interest only on the amount you use. A credit card is an example of revolving line of credit.
Stock
Stock is a type of security that allows you to buy a share of ownership in a company.
Return
If you save or invest money, return is the amount of money you either gain or lose.
