CalculaPréstamo

Financial glossary

Plain-language definitions for interpreting loans, mortgages and microcredit. Contractual and legal meanings may vary by country and provider.

Principal: The amount borrowed or outstanding balance on which interest is calculated. It may mean the original amount advanced or the outstanding principal at a particular date. In an amortising loan, each instalment reduces part of that balance and later interest is normally calculated on what remains.
Payment: A periodic amount that may include principal, interest and other contractual charges. Its composition can change over the loan: early instalments may contain more interest and less principal. Check the amount, frequency, due date, added charges and whether a different final payment is scheduled.
Term: The agreed repayment period. A longer term usually lowers the payment and increases total cost. Usually stated in months or years, it determines the number of payments. With the same principal and rate, a longer term often lowers each payment but keeps the debt outstanding longer and usually increases total interest.
Nominal rate: The interest rate applied to principal; it does not by itself include every charge. This annual nominal percentage must be converted to the payment period when calculating interest and instalments. On its own it does not represent fees, insurance, payment timing or the complete financial effect of the cash flows.
APR: An annual measure combining interest and specified charges under a defined method to support comparison. APR equates the amount received with included repayments and charges while recognising their timing. It supports comparison of similar offers, but the assumptions, included costs and possibility of future rate changes still need checking.
Total cost: Interest, fees, mandatory insurance and other charges, excluding repayment of the principal received. It separates the amount borrowed from the price of borrowing and is generally linked to total payable less principal. Optional services and default-related charges may be excluded, so the contractual scope must be checked.
Amortisation: The reduction of outstanding principal through payments. A payment may be split between interest, principal and other items. The amortisation schedule shows that split and the changing balance; earlier principal reduction normally lowers future interest, although a charge may apply.
Grace period: A period with interest-only or deferred payments that normally delays principal repayment. It may be interest-only, leaving principal unchanged, or a full payment deferral. With full deferral, unpaid interest may accrue or be capitalised, increasing the balance or later payments.
Fixed rate: A rate that remains unchanged during the agreed period. It stabilises the interest component and makes payments more predictable when other terms do not change. Insurance, account fees and other linked costs are not necessarily fixed and should be reviewed separately.
Variable rate: A rate that can change according to an index and contractual review dates. It is commonly an external reference index plus a margin, updated on contractual review dates. Changes can alter the payment or term, so check the index, margin, review frequency and any contractual limits.
LTV: The mortgage amount divided by the property value used by the lender. The percentage depends on the property value accepted by the lender, which may differ from the purchase price. A higher LTV means less buyer equity and a larger loan exposure relative to the property.
Debt-to-income ratio: The share of periodic income used to pay debt. It compares periodic debt payments with the income basis chosen by the methodology, which may be gross or net. It measures debt burden but does not replace a household budget covering essentials and a safety margin.
Outstanding balance: Principal still to be repaid at a given date. It changes after each principal repayment and must be stated for a particular date. It may exclude accrued interest, early-settlement charges or other sums required to close the agreement completely.
Arrangement fee: A charge that may apply when finance is set up and should be assessed with interest. It may be a percentage, fixed amount or both. If deducted upfront, net proceeds fall; if financed, the balance rises and can accrue interest, affecting real cost and APR.
Early repayment: Repaying principal before scheduled dates, potentially reducing debt, term or payment under the contract. It can be full or partial. A partial repayment may lower the payment at the same term or keep the payment and shorten the term; accrued interest, contractual charges and processing dates also matter.
Early-repayment charge: A contractual fee that may apply to early repayment within the relevant legal limits. It is not automatic or identical across products and depends on the agreement, product, date and applicable law. Compare it with expected interest savings and obtain a dated settlement calculation from the lender.
Reference index: An external value used to review a variable rate. An external administrator or publisher produces its value for the date or period specified in the agreement. Check the source, review frequency, applicable observation and fallback rule if the index ends.
Margin: The percentage added to a reference index to set a variable rate. It is normally added to the reference index and may be reduced by discounts linked to products or conditions. Losing a discount can raise the rate even when the reference index is unchanged.
Deposit or down payment: The buyer’s own money applied to a purchase price before calculating finance. It reduces the amount to finance and usually lowers LTV. Keep it separate from tax, valuation, legal and other purchase costs, because the deposit alone may not cover every upfront cash requirement.
Balloon payment: A larger payment left to the final due date by some contracts. It leaves part of principal for the final due date and therefore lowers ordinary instalments. The borrower must fund a large final amount and may pay interest on that residual balance for longer.
Late-payment interest: Interest charged on overdue unpaid amounts under the contract and applicable rules. It applies to overdue sums under the agreed rate and period and is additional to ordinary debt. Collection charges or other consequences may also apply, and paying arrears interest does not necessarily reduce principal.
Refinancing: Replacing or modifying a debt through new financing terms. It may amend the existing agreement or replace it with a new one. Compare the settled balance, new term, APR, fees, security and total cost rather than judging it only by a lower payment.
Debt consolidation: Combining several debts into one; it may lower the payment while increasing term or total cost. New finance repays or combines several obligations into one payment. It may simplify administration, but a much longer term, new charges or pledged security can increase overall cost and risk.
Default: Failure to pay an amount on its due date. It can trigger late interest, permitted charges, collection activity and further contractual or legal consequences. Contacting the lender early and requesting the cost of any proposed arrangement in writing can prevent misunderstandings.