Personal Finance Vocabulary By: Benjamin JOy
A fee that you have to pay every year. An example of an annual fee would be a credit card fee that you have to pay at the end of the year just for using or having their credit card.
A credit limit is how much money or "credit" you have available to spend on a certain credit card. This is determined by how good your credit is and your credit history.
A cash advance is a type of credit that is similar to a credit card but it is only used when you need to change credit to physical money. There are great disadvantages to this because typically cash advance "loans" have high interest rates that compound An example of this would be a payday loan or using your credit card at an ATM.
A grace period is the time given to you (typically 21 days) to pay off your debt before interest starts to pile on to the amount you borrowed. It is wise to pay your bills within the grace period otherwise the interest will make you pay more than you borrowed.
Balance Transfer Fee
A balance transfer fee is a fee that you receive from completing a balance transfer. A balance transfer is what you do when you want to pay off a credit card with high interest by using a credit card with low interest by paying for the higher interest cards debt with the lower interest card. This is a good idea but banks have caught on so they now know to charge a fee for it called a balance transfer fee. This fee is usually $10 or 3% of the amount of money you are transferring, whichever is higher.
A bank card is similar to a credit card but not exactly the same because it can be used to withdraw money from an ATM or can be used at points of sale inside of stores.
A premium card is a type of credit card for a person who travels a lot either for business or for fun. It grants access to certain airport "lounges" which are areas you can go to to wait in instead of a crowed terminal and has more amenities than a terminal. It also comes with all types of insurances for travelers for example the Chase Sapphire Reserve card has a $100,000 medical evacuation insurance that will pay for you to be transported home for medical care. The only downside is that is has a fee of $450 a year in order to use it.
A credit card is a card that banks give to its customers in order to purchase things with the banks money that the customer will then pay back with interest. Banks also charge an annual fee for these cards which is around $100 a year for being able to use it. It is useful because it is safer than carrying around hundreds of dollars on you at all times and you can use it electronically.
A retail card is a type of credit card that offer cash back or points for buying items from a certain retailer. These often carry high interest rates and can make you pay more in interest than the rewards are worth.
A gas card is a type of credit card that allows you to purchase gas from a certain company for a reduced price which is typically around 3 to 6 cents off per gallon which can be huge savings in the long run but you can only use it at that specific gas station chain.
A secured card is a card that is often issued to people with poor credit because it protects the bank from the person taking the money and running and makes it to where the person can build up their credit. The way it works is that the person puts in a certain amount of money for example $500 into their account and that then allows them to use their credit card up to $500.
A home loan is a loan given to someone who is looking to buy a house. The reason these exist is because most people don't just have $200,000 lying around in a bank. These are typically given in 15 or 30 year periods the only difference is the length of time and the interest rate. For a 30 year loan the interest is higher and you end up paying more but with a 15 year loan the interest is lower and you end up paying less but in a shorter amount of time.
Open vs Revolving Loans
An open loan is a loan that has preset terms that you agree to and is typically found in a house loan or a car loan. The terms could be that you have to pay back the loan monthly at $2,000 a month for 15 years. A revolving loan is a loan that doesn't have terms like this except for a max loan. An example of this would be a credit card that has a $5,000 limit and you are at $5,000 on your loan but you pay back $200 then you can immediately use that $200 again.
Close ended vs Installment loans
A close ended loan is a type of loan that the amount borrowed is signed off by a loan officer and the person receiving the loan and a predetermined amount borrowed, rate and over how long. An example of a closed ended loan would be a home loan. A installment loan is a type of loan that is more "flexible" than a close ended loan because the only limit to this loan is a rate and max amount to borrow, you have to pay a minimum payment every month if you have loans to pay. An example of an installment loan is a credit card because you can keep borrowing and borrowing as many times as you want up to your max amount.
One type of mortgage is a fixed rate mortgage is a mortgage whose rate never changes throughout the term of the loan. The second type of mortgage is an adjustable rate mortgage whose rate every year gets lower and lower until you finish the loan term. The third type of loan is a conventional loan is not insured or guaranteed by the federal government.
Private Mortgage Insurance
Private Mortgage Insurance is a type of insurance that is mostly used by people getting conventional loans. This type of insurance protects the lender of the money but in turn the borrower pays the monthly payment for the insurance. People typically pay for it because they wouldn't be able to get the loan otherwise.