Loan glossary
Every important term, explained without jargon. Stuck on a definition? Tap Explain like I'm 5 and AI will rewrite it for you.
Type any loan question, get a plain-English answer.
AI answers are for education only — not financial, legal, or tax advice.
APR (Annual Percentage Rate)
The yearly cost of a loan, including interest and required fees.
APR is the total yearly cost of borrowing expressed as a percentage. It includes the interest rate plus most required fees, so it's a more accurate comparison tool than the interest rate alone. A lower APR means a lower total cost over the life of the loan.
Prequalification
A no-impact rate estimate based on a soft credit check.
Prequalification is a preliminary estimate from a lender showing rates and terms you may qualify for. It uses a soft credit inquiry, which does not affect your credit score. Prequalification is not a final approval.
Soft credit pull
A credit check that does not affect your credit score.
A soft credit pull (or soft inquiry) is used for rate shopping, background checks, and pre-approvals. Unlike a hard pull, it is invisible to lenders scoring your credit and never lowers your score.
Debt-to-income ratio (DTI)
Your total monthly debt payments divided by your gross monthly income.
Debt-to-income ratio (DTI) is the percentage of your gross monthly income that goes to paying debts. Mortgage lenders typically want a DTI below 43%; other lenders may allow higher. Lower DTI means more room in your budget for a new loan.
Loan-to-value (LTV)
The loan amount as a percentage of the collateral's value.
Loan-to-value (LTV) measures how much you're borrowing against the value of the asset securing the loan. A $180,000 mortgage on a $200,000 home is a 90% LTV. Lower LTV usually earns better rates because the lender's risk is smaller.
Origination fee
An upfront fee lenders charge to process a new loan.
An origination fee is a one-time charge for evaluating, preparing, and funding your loan, typically 1%–8% of the loan amount. It's usually deducted from the loan proceeds or rolled into the balance, and it's baked into the APR.
Fixed vs variable rate
Fixed rates never change; variable rates can go up or down over time.
A fixed-rate loan keeps the same interest rate for the entire term, so payments are predictable. A variable-rate loan (also called adjustable) starts lower but can change based on a benchmark index. Variable rates make sense when you expect to pay off quickly or rates to fall.
Debt consolidation
Combining several debts into one loan with a single monthly payment.
Debt consolidation rolls multiple balances (usually high-rate credit cards) into a single fixed-rate loan. It can lower the monthly payment, reduce total interest, and simplify budgeting — but only if the new rate is meaningfully lower than the debts it replaces.
Collateral
An asset a lender can seize if you don't repay a secured loan.
Collateral is property pledged to back a secured loan, such as a car for an auto loan or a home for a mortgage. Secured loans usually have lower rates because the lender's risk is smaller, but you can lose the asset if you default.
Co-signer
Someone who agrees to repay a loan if the primary borrower can't.
A co-signer accepts equal legal responsibility for a loan. Their credit and income help you qualify or earn a better rate — but any missed payment hurts both credit scores, and the co-signer can be pursued for the full balance.