Painted Horse Loans Glossary: Personal Loan Terms A to Z

The 44 definitions below cover the words you will meet on a personal loan offer, from APR and origination fees to autopay discounts and charge-offs, each explained in plain English.

Adverse action notice

A written notice a lender sends when it declines a credit application or offers worse terms than requested. It lists the main reasons, such as a high debt-to-income ratio, and names the credit bureau used. You can then request a free copy of that report to check it for errors.

Amortization

The process of paying off a loan through equal scheduled payments that cover both interest and principal. Early payments go mostly toward interest, and later payments go mostly toward principal. An amortization schedule shows that split for every payment over the term.

Annual income

Your total income before taxes over a year, including wages, self-employment earnings, benefits or a pension. Lenders use it to judge whether you can carry a new monthly payment. Enter it accurately, because a lender may ask for pay stubs or bank statements to verify it.

APR (annual percentage rate)

The yearly cost of borrowing, expressed as a percentage that includes the interest rate plus most upfront fees, such as an origination fee. APR is the fairest single number for comparing offers with the same amount and term. Across our lender network, typical APRs are estimated at 5.99% to 35.99%, set by each lender.

Autopay

An arrangement where the lender drafts your payment automatically from your bank account on each due date. Some lenders offer a small rate discount for enrolling. Make sure the account has enough money on the draft date to avoid a returned-payment fee.

Balance

The amount you still owe on a loan at a given moment, including unpaid principal and any interest that has accrued. Your balance falls as you make payments. Checking it before paying off early tells you the exact payoff amount.

Bank statement

A monthly record of deposits, withdrawals and balances in your bank account. Lenders often request two or three recent statements to confirm income, especially for gig workers and self-employed borrowers. Statements can also show the account is active and in your name.

Charge-off

An accounting step a lender takes when it considers a debt unlikely to be repaid, usually after several months of missed payments. A charge-off does not erase what you owe, and it is reported to the credit bureaus as a serious negative item. The debt may be sold to a collection agency.

Co-borrower

A second person who applies for a loan with you and shares equal responsibility for repaying it. Some lenders count a co-borrower's income and credit alongside yours, which can improve terms. If payments are missed, both credit reports are affected.

Collateral

An asset, such as a car or savings account, that you pledge to secure a loan. If you stop paying, the lender can take the collateral. Most personal loans for $500 to $5,000 are unsecured and do not require collateral.

Credit bureau

A company that collects credit information and sells credit reports. The three national bureaus are Equifax, Experian and TransUnion. Lenders report your payments to one or more of them, so each report can look slightly different.

Credit report

A detailed record of your credit accounts, payment history, balances, inquiries and public records. You can get free reports from each bureau and dispute errors. Lenders read your report, not only your score, when they review a request.

Credit score

A three-digit number, commonly 300 to 850, that summarizes the risk shown in your credit report. Payment history and how much of your available credit you use carry the most weight. A higher score usually leads to a lower APR offer, though lenders also weigh income and debt.

Credit utilization

The share of your available revolving credit that you are using, shown as a percentage. A $2,400 balance on a $3,000 limit is 80% utilization. Bringing utilization under about 30% often helps a score within a billing cycle or two.

Debt consolidation

Combining several debts, often credit card balances, into one new loan with a single monthly payment. It can lower your cost if the new APR is below the rates you were paying. It only helps if you avoid running the old balances back up.

Debt-to-income ratio (DTI)

Your monthly debt payments divided by your gross monthly income. Someone earning $4,000 a month with $1,000 in debt payments has a 25% DTI. Many lenders become cautious above roughly 40%, and the new loan payment counts toward the total.

Default

Failing to repay a loan as agreed, usually after a set number of missed payments described in the agreement. Default can lead to collection activity, added fees and serious credit damage. Contacting the lender early about a hardship plan can sometimes prevent it.

Disbursement

The moment a lender releases loan funds, usually by direct deposit to your checking account. Funding is often as soon as the next business day after a lender approves and you accept, depending on the lender and your bank. Any origination fee is often deducted before disbursement.

Due date

The day each loan payment must reach the lender to count as on time. Some lenders let you choose or change your due date to match the day you get paid. Payments received after the grace period may trigger a late fee.

Early payoff

Paying a loan off before the end of its term. Because interest accrues on the remaining balance, paying early usually reduces the total interest you pay. Check the agreement for any prepayment penalty first.

Fixed rate

An interest rate that stays the same for the life of the loan. Your monthly payment stays the same too, which makes budgeting easier. Most installment personal loans use a fixed rate.

Grace period

A short window after the due date during which a payment is still accepted without a late fee. Grace periods are often a few days to about two weeks, but they vary by lender. Interest may still accrue during this time.

Hard inquiry

A credit check made when you formally apply for credit, which appears on your report for about two years. One hard inquiry typically lowers a score by only a few points for a short time. Several in a short window can make lenders cautious.

Installment loan

A loan repaid in equal scheduled payments over a fixed term, such as 12 or 24 months. A personal loan is a common type of installment loan. You know the payment amount and end date from the start.

Interest

The cost a lender charges for letting you use its money, calculated on the outstanding balance. On an amortizing loan, interest makes up a larger share of early payments. Lower APRs and shorter terms both reduce total interest.

Interest rate

The percentage used to calculate interest on your balance, not including fees. It can be lower than the APR when an origination fee applies. Compare APR rather than the interest rate when you weigh two offers.

Late fee

A charge added when a payment arrives after the due date and any grace period. It may be a flat amount or a percentage of the payment, depending on the agreement and state law. Payments 30 or more days late can also be reported to the credit bureaus.

Lender

The company that reviews your application, sets the APR, fees and term, and sends the money. We are not a lender; we pass your request to lenders in our network, and the lender you choose handles the loan from that point on.

Loan agreement

The binding contract between you and the lender that sets out the amount, APR, payment schedule, fees and your rights. Read it fully before you sign, including sections on late fees, prepayment and dispute resolution. Keep a copy for your records.

Loan term

The length of time you have to repay a loan, such as 6, 12 or 24 months. Typical terms for $500 to $5,000 run 3 to 36 months. A longer term lowers the payment but raises the total interest you pay.

Monthly payment

The fixed amount due each month on an installment loan, covering interest and principal. For example, $2,000 over 12 months at 24.99% APR is about $190.08 a month (estimate). Make sure the payment fits your budget with a cushion left over.

Origination fee

An upfront charge some lenders add for processing a loan, commonly 1% to 10% of the amount. It is often deducted from the funds you receive, so a 5% fee on $2,000 means $1,900 arrives in your account. The fee is included in the APR.

Prepayment penalty

A fee some loan agreements charge if you pay the balance off early. Prepayment penalties are uncommon on personal loans, but they do exist. Confirm in writing that you can pay early without one.

Prequalification

A preliminary look at whether a lender might offer you a loan and at roughly what terms, often based on a soft credit check. Prequalification is not approval, and final terms can change after full review. It lets you compare options without a hard inquiry.

Principal

The amount you borrow, not counting interest or fees. Each payment reduces principal a little, and extra payments usually go straight to principal. Paying down principal faster lowers the interest you owe over time.

Proof of income

Documents that show what you earn, such as pay stubs, bank statements, tax returns or benefit award letters. Lenders request it to confirm you can repay. The type of proof depends on how you are paid.

Representative example

A sample loan showing how amount, term and APR translate into payments and total cost. Our representative example: $2,000 borrowed over 12 months at 24.99% APR = about $190.08/month, $2,280.96 repaid in total (estimate). Your offer may differ.

Returned-payment fee

A fee charged when a scheduled payment fails, usually because the bank account lacked funds. Your bank may charge its own overdraft or returned-item fee as well. Keeping a buffer in your account around the due date helps avoid both.

Secured loan

A loan backed by collateral, such as a vehicle or a savings deposit. Secured loans can carry lower APRs because the lender's risk is lower, but you can lose the asset if you default. Compare this with an unsecured loan before deciding.

Soft inquiry

A credit check that does not affect your score, used for prequalification, account reviews or checking your own report. Many lenders begin with a soft inquiry to show possible terms. Soft inquiries are visible only to you.

Total cost of loan

Everything you repay over the life of a loan: principal plus all interest and fees. Multiply the monthly payment by the number of months, then add any fee deducted upfront. It is the clearest way to see what borrowing really costs.

Underwriting

The lender's process of reviewing your application, credit, income and documents to decide whether to lend and on what terms. Underwriting can take minutes for simple requests or a few days if documents are needed. Accurate information keeps it moving.

Unsecured loan

A loan with no collateral, approved on the strength of your credit, income and history. Most personal loans in the $500 to $5,000 range are unsecured. Because the lender takes more risk, the APR may be higher than on a secured loan.

Variable rate

An interest rate that can rise or fall over the loan term, usually tied to a market benchmark. Your payment can change as the rate moves. Variable rates are less common on small personal loans than fixed rates.