Introduction
Financial terms can be confusing, especially when you’re applying for a loan for the first time. This glossary simplifies the most important terms used in personal loans, business loans, credit cards, and digital lending.
By understanding these terms, you can make smarter financial decisions and avoid hidden charges or confusion.
📗 A–Z Loan & Finance Glossary
1. APR (Annual Percentage Rate)
The total annual cost of borrowing, including interest + fees.
It provides a more accurate picture than just interest rate.
2. EMI (Equated Monthly Instalment)
The fixed amount you pay each month to repay the loan. EMI includes:
- Principal
- Interest
3. Tenure
The duration of a loan: 6–60 months for personal loans, 12–120 months for business loans.
4. Principal Amount
The actual amount you borrow from the lender.
5. Interest Rate
The percentage charged by the lender on the borrowed amount. Can be:
- Fixed interest rate
- Floating interest rate
6. Processing Fee
A one-time fee charged during loan disbursal, usually 1%–5% of loan amount.
7. Credit Score / CIBIL Score
A 3-digit score (300–900) that shows creditworthiness.
Score above 750 is ideal for quick approval.
8. FOIR (Fixed Obligation to Income Ratio)
A key eligibility metric that calculates how much of your income already goes toward EMIs.
Lower FOIR = higher loan approval chance.
9. DTI (Debt-to-Income Ratio)
Similar to FOIR, it measures debt vs income.
10. NACH Mandate
A digital mandate that automatically debits EMI from your bank account.
11. Collateral
An asset (property, gold, vehicle, etc.) pledged for a secured loan.
Personal loans are usually unsecured.
12. Prepayment Charges
Fees for closing a loan early before completion of tenure.
13. Late Payment Fee
Penalty charged when EMI is not paid on time.
14. Loan Disbursal
The final step where the approved loan amount is transferred to your bank account.
15. Sanction Letter
A letter confirming approved loan details: amount, tenure, interest, EMI.
16. NBFC (Non-Banking Financial Company)
Registered financial institutions that offer loans but are not banks.
17. Lending Partner
The NBFC or bank providing the actual loan behind a digital lending app.
18. Digital KYC
Online KYC verification using Aadhaar OTP, DigiLocker, or video KYC.
19. LTV (Loan-to-Value Ratio)
Percentage of asset value a lender finances (common in auto loans, property loans).
20. Top-up Loan
An additional loan on an existing loan, given to eligible borrowers.
21. Underwriting
The lender’s risk evaluation process before loan approval.
22. Hard Inquiry
A credit check initiated when you apply for a loan. Too many hard inquiries can lower your credit score.
23. Soft Inquiry
A credit check done for pre-approved offers; does not affect your credit score.
24. Bounce Charge
A penalty when EMI auto-debit fails due to insufficient balance.
25. Moratorium
A temporary pause on EMI payments (mostly seen during COVID period).
26. Revolving Credit
Credit card facility where unpaid balance carries forward with interest.
27. Overdraft Facility
A bank facility allowing withdrawal beyond account balance, based on limit.
28. Secure vs Unsecured Loan
- Secured: Requires collateral
- Unsecured: Based on credit score & income
29. Documentation
Basic documents required:
- Aadhaar
- PAN
- Salary slip
- Bank statement
- Address proof
30. Eligibility Criteria
Basic factors like age, income, credit score, and location required for loan approval.
31. Disbursal Time
Most digital loans offer instant to 24-hour disbursal.
32. Personal Loan Consolidation
Merging multiple loans into a single loan for easier repayment.
33. High-Risk Borrower
A borrower with low score, high EMI burden, or unstable income.
34. EMI Calendar
Your monthly EMI schedule with due dates.
35. Loan Agreement
A legally binding document signed by borrower & lender.
36. Credit Utilisation Ratio
Percentage of credit limit you use on credit cards.
Ideal utilisation = below 30%.
37. Delinquency
Failure to repay loan on time.
38. Loan Origination
Initial process of applying, verifying, and approving loan.
39. Loan Repayment Schedule
A detailed plan showing EMI breakup, principal & interest over tenure.
40. Instant Loan
Quick online loan with minimal documentation, mostly via NBFC apps.
41. Salary Advance Loan
Small short-term loans for salaried employees, repaid from next salary.
42. Co-applicant
A secondary applicant who shares loan responsibility.
43. Guarantor
A person who guarantees repayment if borrower defaults.
44. Secured Business Loan
Loan backed by property, machinery, or inventory.
45. Unsecured Business Loan
Loan given based on bank statement and monthly revenue.
46. Pre-approved Loan
Loan offers given based on credit history and past repayment habits.
47. EMI Bounce
When auto-debit fails due to insufficient funds.
48. Loan Default
Non-repayment of loan, severely affecting credit score.
49. Debt Settlement
Negotiation with lender to reduce outstanding amount; harms credit health.
50. Loan Foreclosure
Paying off the entire remaining loan before the tenure ends.
Conclusion
This glossary is designed to make financial jargon easier for everyday borrowers. When users understand basic loan terms, they make smarter decisions, avoid hidden charges, and experience a smoother borrowing journey.
