Discover It LoansPersonal loan glossary for discover personal loans and more
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More than 40 lending terms in plain English, from amortization to variable rate. Each one has its own link, so you can share a single definition.
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How to use this glossary
Our glossary defines the words you will see on personal loan offers, disclosures and statements, in alphabetical order. Each term has its own anchor link, so you can jump to it or share it directly.
Loan paperwork uses the same vocabulary at nearly every lender. Whether you are reading an offer from a lender in our network, a credit union quote or the terms of discover personal loans, the definitions below apply. Where a term involves a number, such as an APR or a debt-to-income ratio, we include a short example.
If a word on an offer is not listed here, ask the lender to explain it in writing before you sign. Our FAQ covers common questions about the process, and our rates guide explains how APRs are set.
Terms from A to C
Terms in this section cover how loans are priced and repaid, including APR and amortization, as well as the people and checks involved in an application, such as co-borrowers, collateral and credit inquiries.
Amortization
The way a loan balance is paid down over time with equal payments. Early payments go mostly to interest and later payments go mostly to principal, because interest is charged on the balance still owed.
Amount financed
The money a lender actually provides after any fees taken at closing. On a $2,000 loan with a $100 origination fee, the amount financed is $1,900, and it appears on the Truth in Lending disclosure.
Annual percentage rate (APR)
The yearly cost of a loan, including interest and most required fees, shown as a percentage. APR is the best single number for comparing two personal loan offers of the same amount and term.
Application
The form a borrower submits so a lender can review income, debts and credit. A loan request through a connector service is passed to lenders who then decide whether to make an offer.
Autopay discount
A rate reduction, often about 0.25 to 0.50 percentage points, for setting up automatic payments from a bank account. The discounted rate usually applies only while autopay stays on.
Balance transfer
Moving a credit card balance to another card, often at a promotional 0% rate for a set period. A transfer fee of about 3% to 5% usually applies, and the rate rises when the promotion ends.
Charge-off
An accounting step a lender takes after a loan goes unpaid for months, writing it off as a loss. The debt is still owed and is often sold to a collector, and the charge-off stays on credit reports for seven years.
Co-borrower
A second person who applies jointly and shares full responsibility for the loan. Lenders consider both incomes and credit histories, which can improve the rate.
Co-signer
A person who guarantees a loan without receiving the funds. If the borrower misses payments, the co-signer must pay, and late payments appear on both credit reports.
Collateral
Property pledged to secure a loan, such as a vehicle or savings account. If the loan is not repaid, the lender can take the collateral. Most personal loans are unsecured and need none.
Credit inquiry
A record that someone checked your credit report. A soft inquiry, used for prequalification, does not affect scores. A hard inquiry, used for a final application, can lower a score by a few points for up to a year.
Credit mix
The variety of account types on your credit report, such as installment loans and credit cards. It is a smaller factor in common scoring models; on-time payments matter far more.
Credit report
A record of your borrowing and payment history kept by Equifax, Experian and TransUnion. Lenders use it to judge risk. You can get free reports at AnnualCreditReport.com.
Credit score
A number, usually 300 to 850, that summarizes credit report data. Payment history and how much of your available credit you use carry the most weight in common scoring models.
Credit utilization
The share of your revolving credit limits that you are using. Keeping utilization below about 30% generally helps scores, and paying cards down with a consolidation loan can lower it.
Terms from D to I
Definitions in this group cover debt-to-income, default, disbursement, fixed rates, hardship programs and the basics of installment loans and interest, the ideas most borrowers need when comparing offers.
Debt consolidation
Combining several debts into one new loan with a single payment. It saves money only if the new APR and fees are lower than the combined cost of the debts it replaces.
Debt management plan
A repayment plan arranged by a nonprofit credit counseling agency, which may lower card interest rates and combine payments into one. Enrolled cards are usually closed while the plan runs.
Debt-to-income ratio (DTI)
Monthly debt payments divided by gross monthly income. Many personal loan lenders look for a DTI under about 35% to 45%, including the new payment.
Default
Failing to repay a loan as agreed, usually after several missed payments. Default can lead to collections, a charge-off, damage to credit and, for secured loans, loss of collateral.
Deferred interest
A promotional arrangement where interest is not charged if the balance is paid in full by a deadline, but all interest accrued since the purchase is added if any balance remains. Common on store and medical cards.
Direct payment to creditors
An option where the lender sends consolidation loan funds straight to your card issuers. Some lenders offer a lower rate for choosing it.
Disbursement
The release of loan funds, usually by direct deposit to your bank account. Timing depends on the lender and your bank, from the same day to about a week.
Early payoff
Paying a loan off before the final scheduled payment. Most personal loans charge no prepayment penalty, so early payoff reduces total interest.
Finance charge
The total dollar cost of credit over the life of a loan, including interest and most fees. It is listed on the Truth in Lending disclosure next to the APR.
Fixed rate
An interest rate that stays the same for the life of the loan. Nearly all personal loans have fixed rates, so the payment does not change.
Grace period
A short window after a due date before a late fee applies, often 10 to 15 days on personal loans. Interest may still accrue during it.
Hardship program
A temporary change to a loan, such as a lower payment or a skipped month, offered to a borrower facing a job loss or medical event. Ask the lender early, before payments are missed.
Installment loan
A loan repaid in equal, scheduled payments over a fixed term. Personal loans, auto loans and mortgages are all installment loans.
Interest
The price of borrowing money, charged as a percentage of the balance owed. On an amortizing loan it is calculated each period on the remaining balance.
Terms from J to P
Definitions in this group explain joint loans, late fees, loan agreements, loan terms, origination fees, prequalification and principal, which together set what a loan actually costs you.
Joint loan
A loan with two borrowers who share equal responsibility. It differs from a co-signed loan, where only one person receives the funds.
Late fee
A charge for a payment made after the due date and grace period. It is often a flat amount, such as $15 to $40, or a percentage of the payment, subject to state limits.
Lender network
The group of lenders a connector service can pass a loan request to. Each lender reviews the request separately and decides whether to make an offer.
Loan agreement
The contract that sets the amount, APR, fees, payment schedule and rules for a loan. Federal law requires lenders to show key terms in a Truth in Lending disclosure before you sign.
Loan term
The length of time you have to repay, such as 12, 24 or 36 months. A longer term lowers the payment but raises the total interest paid.
Minimum loan amount
The smallest amount a lender will make. Many online lenders start at $1,000 to $2,000, while some branch lenders start near $500.
Origination fee
A one-time fee for processing a loan, commonly 1% to 10% of the amount. It is usually taken from the funds before you receive them and is included in the APR.
Payment due date
The date each loan payment must reach the lender. Many lenders let you choose or change it once, and aligning it with your paycheck makes payments easier to keep.
Payoff quote
A statement from the lender showing the exact amount needed to pay a loan in full on a specific date, including interest accrued since the last payment.
Prepayment penalty
A fee for paying a loan off early. Most personal loans have none, but always check the loan agreement.
Prequalification
A preliminary check, usually with a soft inquiry, that shows estimated rates and amounts. It is not an approval, and the final offer can differ.
Principal
The amount you borrow, not counting interest or fees. Each payment reduces principal by the part left after interest is covered.
Proof of income
Documents that show what you earn, such as pay stubs, bank statements, tax returns or benefit letters. Lenders use them to confirm you can afford the payment.
Terms from R to Z
The last group of terms covers representative examples, revolving credit, secured and unsecured loans, soft credit checks, Truth in Lending disclosures, underwriting and variable rates.
Representative example
A sample loan that shows how APR, term and payment fit together, such as $2,000 over 24 months at 24.99% APR. It illustrates cost and is not an offer.
Revolving credit
Credit you can borrow, repay and borrow again up to a limit, such as a credit card or line of credit. Payments vary with the balance.
Secured loan
A loan backed by collateral. Secured personal loans can carry lower rates or higher amounts, but the lender can claim the collateral after a default.
Soft credit check
A review of your credit that does not affect your score and is not seen by other lenders. It is used for prequalification and rate checks.
Total of payments
The sum of every scheduled payment over the life of a loan, shown on the Truth in Lending disclosure. It equals the amount financed plus the finance charge.
Truth in Lending disclosure
A federal disclosure that shows a loan's APR, finance charge, amount financed and total of payments. Lenders must give it before you are bound by the loan.
Underwriting
A lender's review of an application to decide whether to lend, how much and at what rate. It covers credit, income, existing debts and identity checks.
Unsecured loan
A loan with no collateral. Approval and pricing rely on credit and income, so rates are usually higher than for secured loans.
Variable rate
A rate that can change over the loan's life, tied to a benchmark. Few personal loans use variable rates, but many credit lines do.
Putting the terms together
Most of these terms meet on a single document, the Truth in Lending disclosure, which shows the APR, finance charge, amount financed and total of payments for your loan. Reading it with this glossary in hand makes any offer easier to compare.
The amount financed is the principal minus any origination fee. The finance charge is the interest plus fees over the full term. The total of payments is what you will pay if you make every scheduled payment. The APR ties them together as a yearly rate. If two offers have the same amount and term, the one with the lower APR and lower total of payments costs less.
Shoppers comparing discover personal loans or other discover loans with smaller lenders can line the disclosures up side by side and compare these four numbers directly. Anyone checking discover personal loan rates should use the APR on the disclosure rather than an advertised range. Our personal loan calculator shows the same figures for any amount, rate and term, and our compare lenders page lists published ranges for 20 lenders.
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