Personal Loan and Debt Glossary: 60 Terms Explained in Plain English

By LoansGenerator.com · Last updated October 1, 2026

Key takeaways

• The APR includes fees; the interest rate does not. Compare loans by APR.
• DTI is your monthly debt payments divided by gross monthly income.
• A charge-off does not erase a debt. Experian says it comes off your credit report seven years from the date of first delinquency. Federal law caps reporting at seven years, counted from 180 days after the delinquency began.
• Under the FTC's Telemarketing Sales Rule, debt relief companies that sell by phone cannot charge you before they settle at least one debt and you make a payment under that settlement.

Every term below has a short definition. Where we have a full guide, the term links to it. For the bigger picture, start at our personal loans hub.

Which loan terms get confused most often?

Loan basics

Amortization. Paying a loan down on a schedule so each payment covers that month's interest and reduces the principal until the balance reaches zero.

Amount financed. What you actually receive after any fee is deducted from the loan.

APR (annual percentage rate). The CFPB defines it as "the interest rate plus any additional fees charged by the lender," including origination charges. Lenders must disclose it under the Truth in Lending Act.

Representative example. For a $5,000 loan at a 10% APR over 36 months, the monthly repayment would be $161.34. Over the term, the total repayment would amount to $5,808.24, with $808.24 in interest. The loan terms range from 6 months to 12 years, with APRs between 5.99% and 35.99%. The exact rate you receive depends on factors like your creditworthiness, loan size, and repayment schedule. Better rates are typically offered to those with excellent credit.

AutoPay discount. A lower rate for paying automatically. LightStream, for example, quotes rates with AutoPay and states rates without it are 0.50 percentage points higher.

Collateral. An asset you pledge, such as a car or home, that the lender can take if you do not repay.

Cosigner. A second person who signs the loan and becomes responsible for repaying it if you do not.

Fixed rate. A rate that does not change for the life of the loan, so the payment stays the same.

Installment loan. A loan repaid in equal scheduled payments over a set term. Most personal loans are installment loans.

Interest rate. The cost of borrowing the principal, expressed as a yearly percentage, not counting fees.

Loan term. How long you have to repay, usually stated in months.

Origination fee. A one-time charge for making the loan. The CFPB lists it first among common personal installment loan fees. It is often deducted from proceeds; the origination fee calculator shows how much you need to borrow to net a target amount.

Prepayment penalty. A fee for paying a loan off early. LightStream, for one, states it has no prepayment penalties; check your own agreement.

Principal. The amount you borrowed, not counting interest and fees.

Secured loan. A loan backed by collateral.

Total of payments. Everything you will pay over the term if you make every payment on schedule.

Unsecured loan. A loan with no collateral, priced on your credit and income.

Variable rate. A rate that can change over time. The CFPB notes HELOCs usually carry one, "so your payments may change from month to month."

Applying and qualifying

Adverse action notice. The notice a lender must send, generally within 30 days of a completed application, when it turns you down. It must give the main reasons or tell you how to get them if you ask within 60 days. Per the CFPB, if the decision used your credit report, the lender must also give the score it used and the key factors behind it.

Credit report. The record of your accounts and payment history kept by a credit reporting company.

Credit score. A number summarizing your credit report. myFICO's ranges: under 580 Poor, 580 to 669 Fair, 670 to 739 Good, 740 to 799 Very Good, 800 and up Exceptional. Our credit scores hub goes deeper.

FICO Score factors. myFICO weights payment history 35%, amounts owed 30%, length of credit history 15%, new credit 10% and credit mix 10%.

Credit utilization. How much of your revolving credit limits you are using. It falls within the "amounts owed" factor.

DTI (debt-to-income ratio). The CFPB defines it as "all your monthly debt payments divided by your gross monthly income." Test yours with the DTI calculator.

Hard inquiry. A credit check for a formal application. The CFPB says these affect your score because models look at "how recently and how frequently you apply for credit."

Soft inquiry. A credit check that, per the CFPB, "will not affect your credit scores." See soft vs hard inquiries.

Prequalification. A rate check, usually with a soft inquiry, that estimates what a lender may offer. It is not an approval.

Representative example. A sample loan showing amount, APR, term, payment and total cost, so you can see what a rate means in dollars.

Underwriting. The lender's review of your credit, income and debts to decide whether to lend and at what price.

Products and high-cost credit

Balance transfer. Moving a card balance to another card, often at a promotional rate.

Balance transfer fee. A fee for that transfer. The CFPB confirms issuers can charge one even on a zero percent offer.

Introductory rate. A temporary promotional rate. Per the CFPB, it must last at least six months unless you are more than 60 days late.

Cash advance. Borrowing cash against a credit card. The CFPB found most large issuers charge the "greater of $10 or 5%," with interest from day one.

Payday loan. A short loan due on your next payday. The CFPB says fees run $10 to $30 for every $100 borrowed, and a common $15 fee equals an APR of almost 400% on a two-week loan. See getting out of a payday loan cycle.

Rollover. Paying a payday fee to delay repayment. The CFPB notes you "still owe the principal" plus new fees.

PAL (Payday Alternative Loan). A small federal credit union loan under 12 CFR 701.21. PAL I runs $200 to $1,000; PAL II up to $2,000. The application fee "in no case exceeds $20," and the rate cap is currently 28% APR. See $1,000 loan options.

Earned wage access (paycheck advance). Early access to pay you have earned, for a fee. The CFPB calculated an illustrative 109.5% APR for a typical employer-partnered transaction.

HELOC. A home equity line of credit. The CFPB warns that "If you fall behind or can't repay the loan on schedule, you could lose your home." See home improvement loan vs HELOC. Lenders' equity, credit and DTI rules are in HELOC requirements.

Credit builder loan. A small loan held in an account while you make payments, built to establish a payment history. See credit builder loans explained.

Buy now, pay later (BNPL). Splitting a purchase into a few scheduled payments through an app. See consolidating BNPL debt.

When payments fall behind

Late fee. A charge for a payment received after the due date.

Date of first delinquency. The date you first missed the payment that led to a charge-off or collection. Experian says charge-offs come off your report seven years after this date. The Fair Credit Reporting Act counts its seven-year limit from 180 days after the delinquency began.

Charge-off. A lender's write-off of a debt as a loss, per Experian typically after 120 to 180 days of missed payments. "A charge-off doesn't mean the debt disappears." See charge-offs explained.

Collection account. A debt handed to a collector or collections department.

Original creditor. The company you first borrowed from, as opposed to a later debt buyer or collector.

Debt collector. A company collecting a debt, often on behalf of, or after buying it from, the original creditor. See sued by a debt collector.

Statute of limitations. Under the CFPB's Regulation F, "the period prescribed by applicable law for bringing a legal action against the consumer to collect a debt." The CFPB says most states set three to six years. See statute of limitations on debt.

Time-barred debt. A debt whose statute of limitations has expired. A debt collector "must not bring or threaten to bring a legal action" to collect it.

Hardship program. A temporary arrangement with a lender, such as reduced payments. See credit card hardship programs.

Pay for delete. Asking a collector to remove an account from your report in exchange for payment. Agreement is never assured. See pay for delete letters.

Consolidation and debt relief

Debt consolidation. Combining several debts into one payment. Our debt consolidation hub compares the routes.

Debt consolidation loan. Per the CFPB, money you borrow "to repay all your separate loans and pay back just one amount."

Credit counseling. Advice from organizations the CFPB describes as "usually non-profit," with certified counselors. See is credit counseling worth it.

Debt management plan (DMP). Under a DMP, the CFPB says, "you make a single payment to the credit counseling organization each month," and it pays your creditors.

Debt settlement. Negotiating to pay less than the full balance, usually from savings built up first. The CFPB warns it "may well leave you deeper in debt than you were when you started." Our debt relief hub compares it with DMPs and bankruptcy.

Debt relief service. A service offering to renegotiate, settle, reduce or otherwise alter the terms of a debt. The FTC's Telemarketing Sales Rule limits how these services can charge.

Advance fee ban. Under 16 CFR 310.4(a)(5)(i), a provider cannot request or receive a fee until it has settled or altered "at least one debt" and you have "made at least one payment" under that agreement. See debt settlement fees and FTC rules.

Dedicated account. The account for settlement savings. The rule requires it be at an insured institution, owned by you, run by an unaffiliated administrator, and that you can withdraw "at any time without penalty" and receive the money in the account, other than fees the provider has already earned under the rule, "within seven (7) business days of the customer's request."

Canceled debt. Per IRS Topic 431, forgiven debt is generally taxable, with several exceptions. See 1099-C and canceled debt taxes.

Form 1099-C. The IRS form a creditor may send showing the amount and date of a canceled debt.

Bankruptcy. A federal court process to discharge or reorganize debts. See debt settlement vs bankruptcy.

Common questions

What is the difference between APR and interest rate?

The APR includes the interest rate plus lender fees such as origination charges, so it is the better number for comparing loans.

What is a good DTI for a personal loan?

Lenders set their own limits and rarely publish them. Lower is stronger. Calculate yours before you apply.

Does a charge-off mean I no longer owe the debt?

No. Experian notes you still owe it, and the creditor can keep collecting or sell it.

Can a debt settlement company charge me upfront?

Not if it sells its service by phone, which the Telemarketing Sales Rule covers. Under 16 CFR 310.4(a)(5)(i), it cannot request or receive a fee until it has settled or altered "at least one debt" and you have "made at least one payment" under that agreement.

Is a PAL the same as a payday loan?

No. A PAL is a federal credit union loan with a 28% APR cap today, no rollovers and an application fee of no more than $20.

How we researched this

Each definition that cites a figure, rule or quote was checked on October 28, 2026 against the CFPB, the eCFR, the U.S. Code, the NCUA, the IRS, myFICO, Experian or a lender's own page, all listed below.

Related: Personal loans hub · $5,000 personal loan · $1,000 loan options · Next step: credit scores for borrowers

Sources

• Consumer Financial Protection Bureau: pages on APR, installment loan fees, DTI, credit inquiries, adverse action, HELOCs, balance transfer fees, introductory rates, payday costs and rollovers, credit counseling, debt relief programs, and old debts; Data Spotlights on cash advances (December 16, 2024) and paycheck advances (July 18, 2024); 12 CFR 1006.26; 12 CFR 1002.9 (Regulation B). All accessed October 28, 2026.
• Federal Trade Commission, 16 CFR 310.4, eCFR, accessed October 28, 2026.
• Legal Information Institute, Cornell Law School, 15 U.S. Code 1681c, accessed October 28, 2026.
• National Credit Union Administration, 12 CFR 701.21, eCFR, and "NCUA Board Extends Loan Interest Rate Ceiling," February 6, 2026, accessed October 28, 2026.
• National Credit Union Administration, Letter to Federal Credit Unions, "Permissible Loan Interest Rate Ceiling Extended," February 2026, accessed October 28, 2026.
• Internal Revenue Service, "Topic no. 431, Canceled debt," accessed October 28, 2026.
• Experian, "How to Remove a Charge-Off From Your Credit Report," accessed October 28, 2026.
• myFICO, "What is a Credit Score?" and "How are FICO Scores Calculated?" accessed October 28, 2026.
• LightStream, "Unsecured Loans," accessed October 28, 2026.

Source links:

• Consumer Financial Protection Bureau, “What is the difference between a loan interest rate and the APR?”
• Consumer Financial Protection Bureau, “Do personal installment loans have fees?”
• Consumer Financial Protection Bureau, “What is a debt-to-income ratio?”
• Consumer Financial Protection Bureau, “What is a credit inquiry?”
• Consumer Financial Protection Bureau, “What can I do if my credit application was denied because of my credit report?”
• Consumer Financial Protection Bureau, “12 CFR 1002.9, Notifications (Regulation B)”
• Consumer Financial Protection Bureau, “What is a home equity line of credit (HELOC)?”
• Consumer Financial Protection Bureau, “What is a balance transfer fee?”
• Consumer Financial Protection Bureau, “How long can I keep a low rate on a balance transfer or other introductory rate?”
• Consumer Financial Protection Bureau, “Data Spotlight: Credit card cash advance fees spike after legalization of sports gambling”
• Consumer Financial Protection Bureau, “What are the costs and fees for a payday loan?”
• Consumer Financial Protection Bureau, “What does it mean to renew or roll over a payday loan?”
• Consumer Financial Protection Bureau, “Data Spotlight: Developments in the Paycheck Advance Market”
• Consumer Financial Protection Bureau, “What is credit counseling?”
• Consumer Financial Protection Bureau, “What is the difference between credit counseling and debt settlement, debt consolidation, or credit repair?”
• Consumer Financial Protection Bureau, “What is a debt relief program and how do I know if I should use one?”
• Consumer Financial Protection Bureau, “Can debt collectors collect a debt that's several years old?”
• Consumer Financial Protection Bureau, “12 CFR 1006.26, Collection of time-barred debts”
• Federal Trade Commission (eCFR), “16 CFR 310.4, Abusive telemarketing acts or practices”
• National Credit Union Administration (eCFR), “12 CFR 701.21, Loans to members and lines of credit to members”
• National Credit Union Administration, “Permissible Loan Interest Rate Ceiling Extended (Letter to Federal Credit Unions)”
• Internal Revenue Service, “Topic no. 431, Canceled debt: Is it taxable or not?”
• Legal Information Institute, Cornell Law School, “15 U.S. Code 1681c, Requirements relating to information contained in consumer reports”

Loans Generator is not a loan provider or broker. We connect users with lending partners who may offer loans, and we may receive compensation from them. This glossary is general information, not legal, tax, or financial advice. Rules, rates and figures cited here were checked on October 28, 2026 and change without notice.