Below is a list of easy-to-understand definitions for some frequently used financial terms.
ACH (Automated Clearing House)
An ACH is a transaction processed through an automated clearing house network that facilitates many electronic interbank funds transfers. It is operated for the benefit of a number of banks in order to efficiently process the transfer of funds electronically. Since operating typically only on weekdays, you may notice disclaimers like "next business day."
This process allows you to make automatic payments and avoid missing a due date. Simply provide the bank with written permission for your lender to withdraw a specific dollar amount on specific dates directly from your account.
APR is the interest payable on an amount borrowed plus other fees expressed as an annual rate of charge.
Arrears are what you’re in after missing one or more loan payments.
Note: It can prevent you from qualifying for future credit, so talk to your creditors before the situation deteriorates further.
Assets are anything you own that has financial value like cash, property, stocks, bonds and even home electronics.
A balance can be the amount of money in your bank account. It can also indicate how much you owe a lender to pay off a loan.
A check "bounces" when your bank account doesn’t have enough funds to cover payment. (See NSF below) The bank returns the check to the payee — unpaid. Now, in addition to still owing the intended recipient money, the bank will likely charge you a substantial fee.
Keeping a budget is one of the best things you can do to stay on top of your finances. It tracks your cash inflow (pay check, interest and other income) vs. outflow (rent, groceries, gas, utilities and other expenses), so you can forecast your financial standing.
A cash advance is money provided against a prearranged line of credit such as a credit card or loan agreement. It can also describe a small loan made over a short period of time.
Charges are assessed by financial institutions to customers for various services and resources made available. Fees include interest charges and cash advance charges. Additionally, if their services are misused or terms are broken, many institutions assess penalties, including overdraft charges, bounced check fees and late payment fees.
Checks and electronic payments go through a clearing cycle when paid into your account. The time varies based upon the type of credit.
A credit bureau, or credit reporting agency, collects data from numerous sources and provides information on individual consumers. Lenders use this information, sometimes in the form of a credit rating, to help them assess the credit worthiness and likelihood that someone will pay back a loan. Examples of credit bureaus are Trans Union, Experian and Equifax.
Your credit limit is the maximum amount of money that you can borrow. The lender typically determines this amount based on a number of factors.
Credit ratings (or credit scores) are used by financial institutions to help them assess the credit worthiness of an individual, corporation, or even a country. They are typically derived from a number of factors including financial history, current assets and liabilities. A credit rating often indicates the probability a subject will be able to pay back a loan. RISE offers free Financial U to help you understand how to maintain a good credit rating.
This document summarizes your credit history, including information from credit bureaus, banks, retailers and collection agencies. It can also include details of your borrowing, applications for credit, court judgments and bill payment behavior. You can request a free copy of your credit report from the credit bureaus.
Debt is money owed to a person or company. RISE customers can learn about healthy ways to manage debt by visiting Financial U.
Some banks charge fees for paying back a loan before the arranged due date. Not at RISE — you can pay off your loan in installments or all at once — anytime without penalties.
Fixed-rate interest remains the same throughout the entire loan term.
Your gross income is the amount your employer pays you before taxes, insurance, retirement contributions and other withholdings are deducted. (The larger of the two income numbers on your pay check.)
Interest can be the amount you earn on your savings and investments. Interest is also the amount you pay on money you borrow. Commonly expressed as a percentage, interest is often included in the total cost of a loan. (See APR).
A loan is money borrowed on condition that it’s paid back per an agreement. There are several types of loans, including a quick and convenient consumer installment loan from RISE.
This legal document makes a loan official by formalizing terms of the loan between you and your lender. When you sign a loan agreement, you enter into a contract that holds you responsible for paying back the money borrowed plus interest and fees.
The loan period is the length of time you have to repay borrowed money. It can last any number of days up to years depending upon the terms of the agreement. In most cases, interest continues to accrue throughout this repayment period.
This is your "take-home pay", or the amount remaining after all deductions, such as taxes, insurance, and retirement contributions have been subtracted from your gross income. (The smaller of the two income numbers on your pay check.)
NSF means you didn’t have enough money in your account to cover your payment. Unfortunately, your financial institution will most likely assess you with additional fees or penalty charges.
Online banking (e-banking or internet banking) refers to banking services available via the web. These programs typically allow you to check your balance, order checks, pay bills, make a cash transfer and perform other services and vary by bank or financial institution.
This is the amount that remains to be paid back on a loan. For example, when you make regular payments on or before the due date, your outstanding balance goes down with each installment. If your payment is late, interest will continue to accrue on the unpaid principal balance, which may cause your outstanding balance to increase.
This is another term to describe a payday loan.
A payday loan is a short-term loan intended to cover unexpected expenses that can’t wait until your next pay check is received. Lenders typically charge a fixed fee based on the amount borrowed and you have until your next payday to pay it off — regardless of when you apply. Payday loans often help people who can’t get credit elsewhere.
This is the date you say you’ll repay your loan or make a payment on your loan.
Rate refers to the level of interest charged by a lender — usually expressed as an annual rate of interest.
A transaction is the movement of money. When you withdraw cash from your account or make a loan payment, you are completing a transaction.
A loan payment that is less than the amount you agreed to pay on a specific date, per the terms of your loan agreement.