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12 Must-Know Finance Terms : Loan Insurance US

Friday, June 13, 2014

 Who Knows When They Will Come to Use?

Recently I was reading a website that had an article (I don’t remember the site name) throwing light on the borrowing habit of the American people. It explained the reasons behind borrowing. The author even blamed American people’s food habit for borrowing. Some critics go on to call the nation a nation of borrowers. Economists blame easy access to loan for people. 

Whatever the reason, the fact just does not change for the borrower. You need a loan because you need a loan. You just cannot escape it. Borrowing is not habitual until one is in trouble. You borrow to buy a bike or an auto. You borrow to revamp your home. You borrow to buy a freezer. You even borrow to pay for your treatment. 

When it comes to borrowing and if you ever need it, you need to understand differences between some common terms related to it.

Here the commonest ones go:

Pre-approved Loan

Many people think that pre-approved loan means the loan has already been approved. In truth, it means the loan has been applied for or in the pipeline. (Though it does not guarantee approval, it stands you in a good stead for approval.)



Merriam-Webster Dictionary defines mortgage as a legal agreement in which a person borrows money to buy property (such as a house) and pays back the money over a period of years. You lose what you mortgage if you fail to repay your loan in time.


Again from the Merriam-Webster Dictionary a lease is a legal agreement that lets someone use a car, a house, etc., for a period of time in return for payment.

Secured Loan

A secured loan is a loan for which your lender has some of your asset like your home, car etc mortgaged from you. You fail to repay as agreed upon  and lose it.

Unsecured Loan

An unsecured loan is a loan against which your lender has nothing to claim or recoup if you fail to repay the loan.

Signature Loan

A signature loan is a loan given to you only on the basis of your signature. It is an unsecure loan.  The
range of loan is 500-25000 dollars. Only a reliable client of a bank is entitled for it.

Origination Fee

An origination fee is the fee your lender charges you for the processing your loan application. It is quoted as part of the total loan. It may stand in between % 0.5 and 0.1.

Line of Credit

A line of credit may have two literal explanations. You have a line of granted loan you cannot cross.  Your (that) loan remains in a line and you can take it whenever you need it. That is to say, a line of credit allows you to take it in parts as you need.

Evergreen Loan

It is as it sounds like. It is a short-term line-of-credit type loan. When you have it, you do not have to pay off the principal amount within a specific timeline. It keeps being renewed and the principal remains outstanding for a long period.


Principal is the amount you have received from your lender.

Open-end Credit

An open-end credit is a credit facility that allows you to transact even when you are out of credit balance. 
You have a limit of how much you can spend, though. Unless you pay back within the due date, you are going to have to add interest to it.

Closed-end Credit

Opposed to the open-end credit, a closed-end credit makes a borrower to repay his loan within a fixed time-frame. You are obliged to repay a buy within 5 years if you have a contract that you will do so.

Pay Day Loan

A pay day loan is a small amount of loan that you are obliged to pay back to your lender on your next pay day.The amount is usually dependent on your salary. The interest rate is high and it can be extended to further paydays. 

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