Discover the Secrets of Interpreting Financial Schemas

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Finance Vocabulary
Lump Sum Payment: A one-time payment of the entire amount owed or a large portion of it. Used to pay off a loan or debt completely at once.
Monthly Payment: Regular monthly payments made towards a loan or debt. These payments are usually made over a set period until the debt is fully paid off.
Principal: The original amount of money borrowed or the amount of the loan that remains unpaid, not including interest.
Interest Rate: The percentage charged on a loan or paid on an investment for the use of money. Interest rates can be fixed or variable.
Amortization: The process of paying off a loan through regular payments over time. Each payment covers both principal and interest.
Balloon Payment: A large payment due at the end of a loan term. This payment is larger than the regular payments and is often required when the loan is not fully amortized.
Refinancing: Replacing an existing loan with a new one, usually with different terms such as a lower interest rate or a different payment schedule.
Debt Consolidation: Combining multiple debts into a single loan with one monthly payment, often with the aim of securing a lower interest rate.
Equity: The value of an owner's interest in an asset, such as a house, after subtracting the amount owed on any loans secured by that asset.
Credit Score: A numerical representation of a person's creditworthiness based on their credit history.
Default: Failure to repay a loan according to the terms agreed upon. Defaulting on a loan can have serious financial and legal consequences.
Foreclosure: The legal process by which a lender takes control of a property due to the borrower's failure to make mortgage payments.
Credit Limit: The maximum amount of credit that a financial institution extends to a borrower.
APR (Annual Percentage Rate): The annual rate charged for borrowing or earned through an investment, which includes any fees or additional costs.
Grace Period: The time period during which a borrower can make a payment without incurring a late fee or interest charge.
Debt-to-Income Ratio (DTI): A financial metric that compares an individual's monthly debt payments to their monthly gross income. It is used by lenders to assess creditworthiness.
Installment Loan: A loan that is repaid over time with a set number of scheduled payments, such as a car loan or a mortgage.
Line of Credit: A flexible loan arrangement with a preset borrowing limit that can be used at any time, up to the limit.
Collateral: An asset a borrower offers to a lender to secure a loan. If the borrower defaults, the lender can seize the collateral.
Prepayment Penalty: A fee charged by some lenders if a borrower pays off a loan early