Loan terminology and lending 101

January 11, 2022

How well do you understand your options for borrowing money? Review this loan terminology glossary to study up on loans, lending, lines of credit and more.

 

Loans can provide an opportunity to buy a new vehicle or home, or provide short-term cash in an emergency. Understanding how loans and credit lines work are critical to financial health, so brushing up on the basics can help you be a more responsible borrower.

 

Loan

A loan is a business contract between borrower and a lender. Those two parties are often a bank customer and a bank, respectively. A loan contract indicates that you get a lump sum of money now, with the expectation that you’ll pay it back to the bank later, usually with interest included. A term loan means a borrower will lend a certain sum of money in exchange for certain loan terms. These are commonly used by small businesses or individuals purchasing a large asset, like a home or a building. Term loans can offer lower interest rates and more flexibility.

 

Interest 

The amount it costs for the bank to lend you money. The loan typically includes a percentage fee, or interest, as a cost of borrowing. That interest rate may be fixed throughout the term of your loan, or it may change. Variable interest rates can potentially change, according to the terms of your contract.

 

Variable interest rate

An interest rate that might change, according to the terms of your contract. An example of a common variable interest rate is a credit card with an introductory 0% annual percentage rate (APR) that then goes up to 15% once you’ve had the card for a year. Other loan types like student loans and adjustable-rate mortgages can include a variable interest rate as well.

 

Fixed interest rate

An interest rate that stays the same throughout the loan. Fixed interest rates don’t change, even when there’s inflation or a change in your payback habits. Credit cards don’t usually have fixed interest rates, but things like car payments and mortgages often do.

 

Open-end credit

A type of loan where you can make repeated withdrawals and payments with no final amount you’ll pay back. Credit cards and home equity loans are open-end lines of credit.

 

Closed-end credit

A type of loan in which all the funds are lended at once, and all the funds must be paid back. When the credit extended to you doesn’t have a set term, or end date, it is considered open-end credit. Credit cards are an example of open-end credit. Closed-end credit, on the other hand, has a set term. For instance, many mortgages are repaid over 30 or 15 years, making them a good example of closed-end credit.

 

Secured credit card

A credit card that requires a cash deposit to open an account. Secured credit cards are a common tool to help build credit history. These cards require a cash deposit, which the bank can use as collateral if you fail to make payments.

 

Learn more about credit and lending.

Related content

How I did it: My house remodel

How do I prequalify for a mortgage?

8 steps to take before you buy a home

First-time homebuyer’s guide to getting a mortgage

Tailor Ridge eBill case study

Home buying myths: Realities of owning a home

5 tips to help you land a small business loan

Is it cheaper to build or buy a house

Middle-market direct lending: Obstacles and opportunities

What is a home equity line of credit (HELOC) and what can it be used for?

3 ways to adapt to the new payments landscape

Money Moments: How to finance a home addition

Common unexpected expenses and three ways to pay for them

Things to know about the Servicemembers Civil Relief Act

Myths vs. facts about savings account interest rates

Managing the rising costs of payment acceptance with service fees

Should rising interest rates change your financial priorities?

For today's homebuyers, time and money are everything

How do interest rates affect investments?

How to use debt to build wealth

4 benefits of independent loan agents

Housing market trends and relocation impact

High-cost housing and down payment options in relocation

For today's relocating home buyers, time and money are everything

Crypto + Relo: Mobility industry impacts

How I did it: Deciding whether to buy an RV

Take the stress out of buying your teen a car

Streamline operations with all-in-one small business financial support

Beyond Mars, AeroVironment’s earthly expansion fueled by U.S. Bank

Credit: Do you understand it?

Personal loans first-timer's guide: 7 questions to ask

Dear Money Mentor: When should I refinance a mortgage?

How I did it: Bought a home without a 20 percent down payment

Starting your homebuying journey: Tips from a U.S. Bank Goals Coach

The lowdown on 6 myths about buying a home

How to use credit cards wisely for a vacation budget

How to choose the right rewards credit card for you

Evaluating interest rate risk creating risk management strategy

Opening a business on a budget during COVID-19

What’s a subordination agreement, and why does it matter?

What is an escrow account? Do I have one?

What’s your financial IQ? Game-night edition

Understanding the true cost of borrowing: What is amortization, and why does it matter?

Money Moments: Tips for selling your home

Parent checklist: Preparing for college

What are conforming loan limits and why are they increasing

What types of credit scores qualify for a mortgage?

Should you get a home equity loan or a home equity line of credit?

Quiz: How prepared are you to buy a home?

Webinar: Approaching international payment strategies in today’s unpredictable markets.

Good debt vs. bad debt: Know the difference

How to establish your business credit score

What is a CLO?

When to consider switching banks for your business

Authenticating cardholder data reduce e-commerce fraud

Increase working capital with Commercial Card Optimization

5 reasons why couples may have separate bank accounts

5 tips to use your credit card wisely and steer clear of debt

How I did it: Bought my dream home using equity

Buying a home Q&A: What made three homeowners fall in love with their new home

Saving for a down payment: Where should I keep my money?

Are professional movers worth the cost?

How you can take advantage of low mortgage rates

Is it the right time to refinance your mortgage?

4 questions to ask before you buy an investment property

Is a home equity line of credit (HELOC) right for you?

10 uses for a home equity loan

How to use your home equity to finance home improvements

What to know when buying a home with your significant other

Webinar: Mortgage basics: What’s the difference between interest rate and annual percentage rate?

Webinar: Mortgage basics: How much house can you afford?

Webinar: Mortgage basics: Buying or renting – What’s right for you?

Webinar: Mortgage basics: What is refinancing, and is it right for you?

Webinar: Mortgage basics: Prequalification or pre-approval – What do I need?

Webinar: Mortgage basics: How does your credit score impact the homebuying experience?

Webinar: Mortgage basics: Finding the right home loan for you

Webinar: Mortgage basics: 3 Key steps in the homebuying process

These small home improvement projects offer big returns on investment

What is refinancing a mortgage?

6 questions to ask before buying a new home

Student checklist: Preparing for college

Webinar: Uncover the cost: College diploma

The A to Z’s of college loan terms

Co-signing 101: Applying for a loan with co-borrower

Practical money skills and financial tips for college students

How to build credit as a student

How I did it: Paid off student loans

Everything you need to know about consolidating debts

5 steps to selecting your first credit card

7 steps to keep your personal and business finances separate

Know your debt-to-income ratio

Dear Money Mentor: How do I begin paying off credit card debt?

Your quick guide to loans and obtaining credit

How to spot a credit repair scam

5 unique ways to take your credit card benefits further

Myth vs. truth: What affects your credit score?

Test your loan savvy

Should you give your child a college credit card?

6 essential credit report terms to know

What applying for store credit card on impulse could mean

How to improve your credit score

Is a home equity loan for college the right choice for your student

How to apply for federal student aid through the FAFSA

Be careful when taking out student loans

Your financial aid guide: What are your options?

5 tips to use your credit card wisely and steer clear of debt

ABL mythbusters: The truth about asset-based lending

Collateral options for ABL: What’s eligible, what’s not?

Crypto + Homebuying: Impacts on the real estate market

How jumbo loans can help home buyers and your builder business

Webinar: Cash management strategies for higher education

When small companies buy big: The potential of asset-based lending

How to maximise your infrastructure finance project

Questions to ask before buying a car

What you should know about buying a car

How to choose the best car loan for you

What you need to know before buying a new or used car

Can you take advantage of the dead equity in your home?

How to get started creating your business plan

How to fund your business without using 401(k) savings

Costs to consider when starting a business

Using merchant technology manage limited staffing

Business credit card 101

Do I need a credit card for my small business?

How a small business is moving forward during COVID-19

Prioritizing payroll during the COVID-19 pandemic

How to accept credit cards online

Investing in capital expenditures: What to discuss with key partners

Can ABL options fuel your business — and keep it running?

The surprising truth about corporate cards

Tech lifecycle refresh: A tale of two philosophies

Avoiding the pitfalls of warehouse lending

At your service: Outsourcing loan agency work

Maximizing your infrastructure finance project with a full suite trustee and agent

An investor’s guide to marketplace lending

Should you buy a house that’s still under construction?

Webinar: A closer look at U.S. Bank AP Optimizer

How to accept credit card payments without transaction fees

Start of disclosure content

Loan approval is subject to credit approval and program guidelines. Not all loan programs are available in all states for all loan amounts. Interest rate and program terms are subject to change without notice. Mortgage, home equity and credit products are offered by U.S. Bank National Association. Deposit products are offered by U.S. Bank National Association. Member FDIC.