Finance Dictionary

Not sure what all these finance terms mean? We’ve got your back!

Check out our Finance Dictionary for simple definitions to many common financial terms below.


403(b) Plan – A retirement plan for employees of various organizations, such as public schools.

Amortization – The repayment of a loan over time.

Appreciate – Things that gain in value over time, as with real estate, savings accounts, and investment accounts.

APR – Annual percentage rate. The yearly percentage rate applied to various types of credit.

APY – Annual percentage yield. The yearly interest earned on accounts.

Asset – A resource worth value, such as a home, vehicle, etc.

Authorized User – Someone who has access to a line of credit (such as with a credit card), but is not primarily responsible for paying the balance.

Balance – The money remaining on a loan or in an account.

Bankruptcy – A legal status of an individual/company that cannot repay debts owed to creditors.

Bear Market – A period of falling stock prices.

Bond – Essentially a loan in which the bond issuer must pay back the bond holder along with interest depending on the terms of the bond.

Borrower – The person or group borrowing money.

Bull Market – A period of rising stock prices.

Capital Gain – A profit made on an investment.

Capital Loss – A loss on an investment.

Closed-end Credit – Credit extended in a specified amount, such as with a mortgage or auto loan.

Cost of Living Adjustment (COLA) – An annual increase for Social Security benefits based on increases in the cost of living.

Collateral – An asset that is promised in the case of nonpayment on a loan.

Compound Interest – When interest is added to the principal amount and subsequent interest calculations, such as with credit cards. In this case interest is paid on interest.

Consumer Debt – A debt that funds consumption rather than investments, and is used to purchase items that are consumable or do not appreciate.

Conventional Loan – A mortgage loan not backed by a government agency that requires a higher down payment and credit score to qualify.

Co-signer – Someone who guarantees that they pay back the debt if the borrower cannot. This is a legal obligation.

Credit – Money extended that is promised to be repaid at a later date.

Credit Card – A card connected to a line of credit that must be repaid. You may spend on the card until you have reached the maximum line of credit.

Credit Score – A number that represents the risk of extending credit to an individual. The higher the credit score, the less risk to the lender.

Daily Percentage Rate – The amount of interest paid daily on a loan or credit card.

Debit Card – A card connected to a checking account. Money spent on the card will be withdrawn from the account.

Debt – Money owed to another party.

Debt/Income Ratio – The amount of debt versus the ability to pay it back.

Deferred Compensation – When a portion of an employee’s income is paid later than when it was earned, such as with retirement plans.

Depreciate – Things that lose value over time, as with cars, electronics, and most consumer items.

Dividend – An amount of money paid regularly to shareholders as a distribution of profits. Can also be paid as interest on various types of accounts.

Dow Jones Industrial Average (Dow) – A stock market index of 30 large companies based in the U.S. and how they have done over time. Used as an overall indication of the stock market.

Equity – The difference between the value of an asset and what is owed.

Exchange-Traded Fund (ETF) – An investment portfolio consisting of stocks/bonds.

Federal Housing Administration (FHA) Loan – A mortgage loan back by the government that does not require as high a down payment or credit score to qualify.

Fiscal Year – A 12-month period for tax and accounting purposes.

Fixed Interest Rate – The interest rate does not change over the life of the loan.

Foreclosure – A process where the lender takes possession of a property after the borrower fails to make their mortgage payments.

Inflation – A consistent increase in the price of goods and services over a period of time.

Interest – The amount paid in addition to the principal amount at a particular rate. In essence, it is the price paid for borrowing money. You may also earn interest on any money you have in checking/saving/investment accounts.

Invoice Price – Generally the price paid by the dealership for a new car.

Itemized Deduction – Eligible expenses that taxpayers can claim on their tax returns. Done if the sum of the itemized deductions is greater than the standard deduction.

Lender – The person or group extending money.

Liabilities – Funds owed to other parties.

Line of Credit – The maximum loan balance extended to the borrower.

Liquid Account – An account that allows you to withdraw money at any time without penalty.

Loan – Funds borrowed that must be repaid.

Mortgage Insurance Premium (MIP) – Insurance required on an FHA loan.

MSRP – Manufacturer suggested retail price.

Overdraft – Withdrawing more money than is in the account. Usually a fee is charged when this happens.

Principal – The amount borrowed or invested.

PI – Principal and interest on a loan.

PITI – Principal, interest, taxes, and insurance. These four factors make up your monthly mortgage payment.

Private Mortgage Insurance (PMI) – Insurance required on a conventional loan if a 20% down payment is not made at closing.

Real-Estate Investment Trust (REIT) – A portfolio of real-estate assets in which investors pool their money and then earn a portion of the income generated.

Repossession – A process where a lender takes possession of an item when the buyer fails to make loan payments.

Revolving Credit – An amount of credit is always available and periodically paid back.

Robo-AdvisorInvestments made based on computer algorithms.

Roth IRA – An individual retirement account that allows you to contribute after tax dollars, and investment gains are not taxed at withdrawal.

Secured Loan – A loan in which the borrower pledges an asset (collateral) that will be repossessed in the case of default on the loan.

Standard Deduction – A fixed deduction amount taxpayers can claim on their tax returns, the amount of which varies depending on filing status.

S&P 500 – A stock market index of the larges 500 companies based in the U.S. Also an indicator of stock market performance.

Stock – A share in ownership of a company issued by the company in order to raise money to grow.

Stock Broker – An individual who buys and sells stock on behalf of clients on a stock exchange.

Traditional IRA – An individual retirement account that allows you to contribute before tax dollars, with taxes being paid on investment gains at withdrawal.

Trust Fund – A legal entity that holds property or assets on behalf of another person or group.

Unsecured Loan – A loan supported by the creditworthiness of the borrower rather than collateral.

Variable Interest Rate – The interest rate does change over the life of the loan based on market interest rate changes.

Veterans Affairs (VA) Loan – A mortgage loan back by the Department of Veterans Affairs available to current and former members



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