Share |

Financial Glossary

Expand your brain with some financial vocab. Impress your friends, shock your parents, but most importantly get a grasp of all the stuff that up until now may have just gone over your head. Skim this list of glossary terms and you might be surprised what you already know, what you just plain misunderstood, and what you never even knew existed.

*Source: Oklahoma State Department of Education, Personal Financial Literacy Glossary


Adjustable Rate Mortgage – a mortgage loan subject to changes in interest rates; when rates change, monthly payments increase or decrease at intervals determined by the lender and a prescribed index and set margin; the monthly payment increases usually have a per adjustment and a lifetime cap.

Alternative or private loans (nonfederal) – loans that can be used to cover the gap between the cost of postsecondary education and the amount of financial aid received in the form of grants, scholarships, and federal student loans. Since alternative or private loans can have higher interest rates and fewer flexible repayment programs, they should only be considered after all federal loan options are exhausted.

Annual Percentage Rate (APR) – the percentage cost of credit on an annual basis, which must be disclosed by law. Example 1: A $100 loan repaid in its entirety after one year with a $10 finance charge ($9 interest plus a $1 service fee) has an APR of 10%. Example 2: A $100 one-year loan with a $10 finance charge repaid in twelve equal installments has an APR of 18%.

Annual Percentage Yield (APY) – the annual rate of return on an investment, which must be disclosed by law and which varies by the frequency of compounding. Example 1: A $1,000 investment that earns 6% per year pays $60 at year-end and has an APY of 6%. Example 2: A $1,000 investment that earns 0.5% per month (6%/12) pays $61.68 in one year and has an APY of 6.17%. Example 3: A $1,000 investment that earns 0.0164% per day (6%/365) pays $61.83 in one year and has an APY of 6.18%.

Annuity – a contract between an individual and an insurance company where the individual makes a series of payments that are invested by the company and repaid to the individual at a later date—generally during retirement. Annuities may be fixed or variable.

Automated Teller Machine (ATM) – a computer terminal used to conduct business with a financial institution or purchase items such as postage stamps or transportation tickets; also known as a cash machine.


Balloon Mortgage – a short-term mortgage in which small periodic payments are made until the completion of the term, at which time the balance is due as a single lump–sum payment.

Bankruptcy – a state of being legally released from the obligation to repay some or all debt in exchange for the forced loss of certain assets. A court’s determination of personal bankruptcy remains in a consumer’s credit record for 10 years.

Bank – a state or federally chartered for-profit financial institution that offers commercial and consumer loans and other financial services.

Beneficiary – a person or organization named to receive assets after an individual’s death.

Bond – a certificate representing the purchaser’s agreement to lend a business or government money on the promise that the debt will be paid—with interest—at a specific time.

Borrowing – the act of receiving and using something belonging to somebody else, with the intention of returning or repaying it—often with interest in the case of borrowed money.

Brokerage Firms – Financial services businesses that buy and sell securities such as stocks and bonds to investors.

Budget – a plan for managing money, dividing up expected income and expenses among pending and saving options based on personal goals during a given time period.


Capacity – the ability to repay a loan from present income; used in loan underwriting.

Capital – money or other assets owned by individuals or used in operating a business.

Capital gain – income that results when the selling price of an asset is greater than the original purchase price.

Capital loss – monetary loss that occurs when the selling price of an asset is less than the original amount invested.

Cash flow statement – a summary of receipts and payments for a given period, helpful when preparing a budget; also known as an income and expense statement.

Check – a written order directing a bank or credit union to pay a person or business a specific sum of money.

Closed-end credit – a specific-purpose loan requiring repayment with interest and any other finance charges by a specific date. Examples include most mortgages or auto loans.

Collateral – property that a borrower promises to give up to a lender in case of default.

Collection agency – a business that specializes in obtaining payments from debtors who have defaulted on their loans.

Compensation – payment and benefits for work performed; also payment to injured or unemployed workers or their dependents.

Compound Interest – interest earned not only on the principal but also on the interest already earned.

Compounding – paying interest on the principal and on interest already earned; the longer the money is left in the account, the more dramatic the compounding effect.

Credit – an agreement to provide goods, services, or money in exchange for future payments with interest by a specific date or according to a specific schedule. The use of someone else’s money for a fee.

Credit bureau – an establishment that collects and distributes credit-history information of individuals and businesses. The three major credit bureaus are Experian, Equifax, and Trans Union.

Credit card – a plastic card that authorizes the delivery of goods and services in exchange for future payment with interest, according to a specific schedule.

Credit counseling service – an organization that provides debt and money management advice and assistance to people with debt problems.

Credit Products – financial products such as credit cards, bank loans, etc.

Credit report – an official record of a borrower’s credit history, including such information as the amount and type of credit used, outstanding balances, and any delinquencies, bankruptcies, or tax liens.

Credit score/rating – a measure of creditworthiness based on an analysis of the consumer’s financial history, often computed as a numerical score, using the FICO or other scoring systems to analyze the consumer’s credit. A creditor’s evaluation of a person’s willingness and ability to pay debts as judged by character, capacity, and capital; a mathematical model used by lenders to predict the likelihood that bills will be paid as promised.

Credit union – a state or federally chartered not-for-profit financial cooperative that provides financial services to its member-owners, who have met specific employment, residence, or other eligibility requirements.

Creditworthy – the presumption that a specific borrower has sufficient assets, income, and/or inclination to repay a loan.


Debit card – a plastic card that provides access to electronic funds transfer (EFT) from an automated teller machine (ATM) or a point-of-sale (POS) terminal.

Debt – something owed, usually measured in dollars. Entire amount of money owed to lenders.

Debt to Income Ratio – the percentage of a consumer’s monthly gross income that goes toward paying debts.

Deductible – the dollar amount or percentage of a loss that is not insured, as specified in an insurance policy.

Deed of Trust – in some states, a deed is used instead of a mortgage to secure payment and the title is conveyed to a trustee.

Default – failure of a borrower to repay a student loan according to the terms agreed upon when the promissory note was signed. When a borrower defaults, the school, loan holder, state government, and federal government can take action to recover the money. Defaults are reported to national credit bureaus and might affect a borrower’s ability to get credit in the future.

Deferred Interest – a deferred interest loan is when a loan payment stays the same while the interest rate increases. A deferred interest loan will let you choose to pay only the minimum payment—a payment less than the entire interest owed for that month. The unpaid interest is then added to your loan amount to be paid at a later date.

Delinquency – failure of a borrower to make a loan payment on the scheduled payment due date.

Discount Point – an amount or fee a borrower pays to a lender, which will help decrease the interest rate on a mortgage loan. One point is equal to one percent.

Disposable income – gross pay minus deductions for taxes.

Diversification – a strategy for reducing some types of risk by selecting a wide variety of investments.

Dividends – earnings from corporate stock or credit union share accounts.

Down payment – (1) an initial, partial payment made at the time of purchase to permit the buyer to take delivery of the purchase; (2) a partial payment made to evidence good faith that the buyer will complete the purchase transaction at the time the contract is signed.

  • National Credit Union Administration
  • Equal Housing Opportunity

Content of this site is provided as information only and is not intended to serve as advice or representation whatsoever. Investigate these topics further by contacting appropriate advisers.

» TFCU Disclaimer and Privacy Statement