Glossary: General Finance

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Annual Fee: Various credit card issuers charge an annual fee, which can help offset costs that issuers incur in maintaining accounts.

Annual Percentage Rate (APR): Sometimes also called the interest rate. The yearly interest rate or percentage that one pays on an outstanding balance in the form of interest.

Amortization
The process of fully paying off indebtedness by installments of principal and earned interest over a definite time.

Amortization Schedule
The schedule of payments for paying off a loan.

Appraisal
A professional opinion of an asset's market value as of a specific date.

Automated Teller Machine (ATM): Allows customers to perform banking transactions anywhere and at anytime. By using a Debit or ATM card at an ATM, individuals can withdraw cash from checking or savings accounts, make a deposit or transfer money from one account to another or perform other functions. You can also get cash advances using a credit card at an ATM. Individuals should also be aware that many banks charge transaction fees — generally ranging from 50 cents to $3 per transaction - for using another bank's ATM. SELCO members can avoid bank surcharges by using the Co-Op ATM Network.

Average cost per year
The net cost of owning a car divided by the number of years the car is owned. Net cost equals non-operating costs of owning a car less the car’s expected trade-in value, any amortized loan principal and rebates. Non-operating costs include interest paid on a loan for the car, depreciation expense or wear-and-tear and the trade-in value of the car used to help pay for the replacement vehicle.

Balance Transfer: The process of moving an unpaid credit card balance from one issuer to another.

Balanced budget Income equals expenses.

Budget An itemized summary of probable income and expenses for a given period. A plan for spending and saving money.

Budget shortage Expenses are greater then income. Also called a deficit.

Budget surplus Income is greater than expenses.

Cash Advance: A borrower may obtain cash on the spot by using their card at a bank or an ATM. The amount of the cash advance is deducted from your available credit line or funds on deposits. A fee is often charged when obtaining cash advances. In addition, the interest rate is usually higher than on purchases and there is typically no grace period. (A cash advance is different from a withdrawal you make with your ATM card.)

Collateral
Also referred to as security. Property that is offered to secure a loan or other credit and that becomes subject to seizure on default.

Compound interest
Interest which is calculated not only on the initial principal but also the accumulated interest of prior periods.

Cosigner
Another person who signs for a loan and assumes equal liability for it.

Credit
The promise to pay in the future in order to buy or borrow in the present. The right to defer payment of debt.

Credit Union
A financial cooperative organizations of individuals with a common affiliation (such as employment, labor union membership, or place of residence). Credit unions accept deposits of members, pay interest (dividends) on them out of earnings, and primarily provideconsumer installment credit to members.

Creditworthiness
A creditor's measure of a consumer's or company's past and future ability and willingness to repay debts.

Credit Card
Any card, plate, or coupon book that may be used repeatedly to borrow money or buy goods and services on credit.

Credit History: A record of how a person or company has borrowed and repaid debts, used as a guide to determine whether the consumer is likely to pay accounts on time in the future.

Credit Line/ Line of Credit: Also referred to as your credit limit. This is the maximum amount you can borrow using your card.

Credit Scoring System
A statistical system used to determine whether or not to grant credit by assigning numerical scores to various characteristics related to creditworthiness.

Default
Failure to meet the terms of a credit agreement.

Discretionary expenses Determined by personal needs and wants and may be controlled. Examples: clothing, entertainment.

Discretionary income The amount of income available for spending after all fixed and necessary expenses have been paid.

Extended Warranty: Extend the life of your purchase. With this program, you can double the U.S. manufacturer's or store brand warranty's period of protection. This is an insurance program, certain restrictions and exclusions apply.

Finance Charges: The price paid to a lender for the use of borrowed money. Interest is charged as a percentage of your outstanding balance (purchases and charges reduced by payments or credits posted). This percentage, or interest rate, can vary from card to card.

Fixed Rate: A set APR that does not change in response to interest rate changes and conditions. A Variable Rate periodically goes up or down based on fluctuations in market interest rates as reflected in a published index (e.g., the prime rate published in the Wall Street Journal).

Effective annual interest rate
The actual annual interest rate that accrues, after taking into consideration the effects of compounding (when compounding occurs more than once per year).

Emergency fund Money set aside to allow you to weather any unexpected events or expenses in your life. Often used to pay for expenses not incorporated into the budget such as property losses, medical expenses not covered by insurance, unemployment.

Escrow
Money, documents, real estate or securities deposited with a neutral third party (the escrow agent) and then disbursed upon fulfillment of certain established conditions. The escrow agent's role is to protect either side of a transaction from the other side's unauthorized use of funds and to ensure an arms-length transaction between buyer and seller.

Expense An individual’s cost or obligation to meet a need or pay a debt.

Federal Reserve System
The central bank of the United States created by Congress, consisting of a seven-member Board of Governors in Washington, D.C., 12 regional Reserve Banks, and depository institutions that are subject to reserve requirements. All national banks are members; state chartered banks may elect to become members, and state members are supervised by the Board of Governors and the Reserve Banks. Reserve requirements established by the Federal Reserve Board apply to nonmember depository institutions as well as member banks. Both classes of institutions have access to Federal Reserve discount borrowing privileges and Federal Reserve services on an equal basis.

Financial Institution
An institution that uses its funds chiefly to purchase financial assets (deposits, loans, securities) as opposed to tangible property. Financial institutions can be classified according to the nature of the principal claims they issue: nondeposit intermediaries include, among others, life and property/casualty insurance companies and pension funds, whose claims are the policies they sell, or the promise to provide income after retirement; depository intermediaries obtain funds mainly by accepting deposits from the public. The major depository institutions are listed below. Although historically they have specialized in certain types of credit, the powers of nonbank depository institutions have been broadened in recent years. For example, NOW accounts, credit union share drafts, and other services similar to checking accounts may be offered by thrift institutions.

Finance Charge
The total dollar amount paid to get credit.

Fixed expenses Occur regularly and do not vary in amount. Examples: rent, car payments.

Fixed Rate
An approach to determining the finance charge payable on an extension of credit. A predetermined and certain rate of interest applied to the principal of a loan or credit agreement.

Goods Items of value that are tangible (capable of being seen or touched).

Grace Period: A period of time — usually 20-25 days — when you're not charged interest for purchases you've made. For example, if the billing date on your credit card bill is May 1 and you have paid your prior balance in full, you may have until May 20 to pay your new balance in full. If you do, you will not be charged interest. If your payment arrives after May 20 — or if you don't pay the entire balance — you may be charged interest from the date of purchase as posted. Some accounts have no grace period, which means interest is charged on purchases from the date they are posted.

Graduated Payment
Repayment terms calling for gradual increases in the payments on a closed-end obligation. Negative amortization is usually associated with a graduated payment loan.

Gross income
Total income before taxes or deductions. Gross income is one of the factors lenders weigh when they review loan requests.

Home equity loan
A fixed- or variable-rate loan, secured by a mortgage lien, that allows a homeowner to borrow against equity in their house to pay for repairs or other home improvements, refinance other debt or use for other purposes.

Income Earnings.

Inflation The general increase in the cost of goods and services. Often measured by the consumer price index (CPI).

Inflation rate
The percentage increase in the price of goods and services, usually annually.

Interest rate
The fee charged by a lender to a borrower for the use of borrowed money, usually expressed as an annual percentage of the principal; the rate is dependent upon the time value of money, the credit risk of the borrower and the inflation rate. Interest rates can be calculated as simple, compounded or effective.

Introductory Period: The time period during which the Introductory Rate applies to balances outstanding on your account.

Introductory Rate: A special APR that applies for only a limited period of time. Sometimes also called a teaser rate.

Liability On An Account
Legal responsibility to repay debt.

Lien
A legal claim against an asset, like a home or auto, which is used to secure a loan.

Loan
An arrangement in which a lender gives money or property to a borrower, and the borrower agrees to return the property or repay the money, usually along with interest, at some future point(s) in time.

Loan application
The first step in obtaining a loan. The loan application tells the lender how much the applicant wishes to borrow and how the loan proceeds will be used. An application typically lists personal income and assets, provides a work history and authorizes the lender to obtain a credit report.

Loan-to-value ratio
Also known as LTV. It is the amount borrowed (loan) divided by the appraised value of the collateral. It is expressed as a percentage. The collateral value is determined by either an appraisal or recent arms-length transaction. For example, a $20,000 loan on a car that was recently appraised at $25,000 has an LTV of 80 percent.

Merchant: Location or store where purchases are made.

Net income For an individual, gross income minus expenses.

No Preset Spending Limit: No Preset Spending Limit rewards consumers who have established a good credit history. The card's spending limit is not predetermined. Instead, it is set by the card's issuer, based on account history, spending patterns, payment history and other personal variables.

Online Banking: Online systems allow customers to plug into a host of banking services from a personal computer by connecting with the credit union's computers over the Internet.

Opportunity costs Cost of goods and services that must be given up in order to obtain other goods and services.

Overdraft: When the amount of a paid check or other withdrawal exceeds the available balance in a checking account (can result in fees).

Principal
The amount borrowed, or the part of the amount borrowed which remains unpaid (excluding interest). Also known as the part of a monthly payment that reduces the outstanding balance of a mortgage.

PIN: Personal Identification Number. Secret code you choose for your card that enables you to access your money or perform banking transactions through the ATM as well as make purchases without signing a sales receipt at merchants that have PIN pads. Your PIN should not be shared with anyone.

Purchase Assurance: Most new purchases are covered against theft or damage for a full 90 days from the date of purchase. This is an insurance program, certain restrictions and exclusions apply.

Purchasing power The value of money measured in terms of what one can buy with it.


Savings Unspent income.

Savings rate
The percentage of gross income that is saved or invested.

Services Work that has value, such as the work of lawyers, doctors, actors, electricians, plumbers, etc.

Secured Cards: Secured credit cards are a great first step for those with little or no credit history. This type of card requires that a security deposit be made in order to establish a credit line. Your credit line will typically be equal to the amount of your deposit.

SELCOselect Rewards: At SELCO Community Credit Union, all members receive special benefits through our SELCOselect Rewards program. Our Rewards program is simple: you qualify for one of four benefit levels based on your combined average monthly household savings and loan balances, and we give you benefits. You choose your benefit level through how much you save and borrow at SELCO, and every time you move up to the next level, you receive more benefits! As your relationship with us grows, your benefits grow, and so does the entire credit union!

Simple interest
The interest calculated on a principal sum, not compounded on earned interest.

Tax rates
The level of income tax of a given individual, as indicated by the amount of taxes he/she pays on his/her final dollar of taxable income.

Tax savings
A strategy of reducing of income tax liabilities by taking allowable deductions from taxable income, such as payments for mortgage interest, medical expenses and charitable contributions. Also known as a tax shield.

Term
The period of time of a loan. Auto loans are generally two to fours years in duration, while home mortgage loans generally have 15- or 30-year terms.

Title
A legally binding document that establishes evidence of ownership of an asset and any liens or other claims filed against the asset. A title should be examined for any recorded liens, which "encumber" a title and make its transfer more difficult than that of an unencumbered title. An unencumbered title is also referred to as a "clean" title.

Underwriting
A loan review process that begins with the acceptance of a loan application and ends with a decision to either approve or deny the loan request.

Upfront costs
These include any fees and charges collected in advance, before a loan is funded.

Variable expenses May occur regularly, but they vary from one time to another. Examples: utilities, groceries, telephone.

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