Finance Dictionary

Not sure what all these finance terms mean? We’ve got your back!

Check out our Finance Dictionary for simple definitions to many common financial terms below.


Finance Dictionary

403(b) Plan – A retirement plan for employees of various organizations, such as public schools.

Amortization – The repayment of a loan over time.

Appreciate – Things that gain in value over time, as with real estate, savings accounts, and investment accounts.

APR – Annual percentage rate. The yearly percentage rate applied to various types of credit.

APY – Annual percentage yield. The yearly interest earned on accounts.

Asset – A resource worth value, such as a home, vehicle, etc.

Authorized User – Someone who has access to a line of credit (such as with a credit card), but is not primarily responsible for paying the balance.

Balance – The money remaining on a loan or in an account.

Bankruptcy – A legal status of an individual/company that cannot repay debts owed to creditors.

Bear Market – A period of falling stock prices.

Bond – Essentially a loan in which the bond issuer must pay back the bond holder along with interest depending on the terms of the bond.

Borrower – The person or group borrowing money.

Bull Market – A period of rising stock prices.

Capital Gain – A profit made on an investment.

Capital Loss – A loss on an investment.

Closed-end Credit – Credit extended in a specified amount, such as with a mortgage or auto loan.

Cost of Living Adjustment (COLA) – An annual increase for Social Security benefits based on increases in the cost of living.

Collateral – An asset that is promised in the case of nonpayment on a loan.

Compound Interest – When interest is added to the principal amount and subsequent interest calculations, such as with credit cards. In this case interest is paid on interest.

Consumer Debt – A debt that funds consumption rather than investments, and is used to purchase items that are consumable or do not appreciate.

Conventional Loan – A mortgage loan not backed by a government agency that requires a higher down payment and credit score to qualify.

Co-signer – Someone who guarantees that they pay back the debt if the borrower cannot. This is a legal obligation.

Credit – Money extended that is promised to be repaid at a later date.

Credit Card – A card connected to a line of credit that must be repaid. You may spend on the card until you have reached the maximum line of credit.

Credit ScoreA number that represents the risk of extending credit to an individual. The higher the credit score, the less risk to the lender.

Daily Percentage Rate – The amount of interest paid daily on a loan or credit card.

Debit Card – A card connected to a checking account. Money spent on the card will be withdrawn from the account.

Debt – Money owed to another party.

Debt/Income Ratio – The amount of debt versus the ability to pay it back.

Deferred Compensation – When a portion of an employee’s income is paid later than when it was earned, such as with retirement plans.

Depreciate – Things that lose value over time, as with cars, electronics, and most consumer items.

Dividend – An amount of money paid regularly to shareholders as a distribution of profits. Can also be paid as interest on various types of accounts.

Dow Jones Industrial Average (Dow) – A stock market index of 30 large companies based in the U.S. and how they have done over time. Used as an overall indication of the stock market.

Equity – The difference between the value of an asset and what is owed.

Exchange-Traded Fund (ETF) – An investment portfolio consisting of stocks/bonds.

Federal Housing Administration (FHA) Loan – A mortgage loan back by the government that does not require as high a down payment or credit score to qualify.

Fiscal Year – A 12-month period for tax and accounting purposes.

Fixed Interest Rate – The interest rate does not change over the life of the loan.

Foreclosure – A process where the lender takes possession of a property after the borrower fails to make their mortgage payments.

Inflation – A consistent increase in the price of goods and services over a period of time.

Interest – The amount paid in addition to the principal amount at a particular rate. In essence, it is the price paid for borrowing money. You may also earn interest on any money you have in checking/saving/investment accounts.

Invoice Price – Generally the price paid by the dealership for a new car.

Itemized Deduction – Eligible expenses that taxpayers can claim on their tax returns. Done if the sum of the itemized deductions is greater than the standard deduction.

Lender – The person or group extending money.

Liabilities – Funds owed to other parties.

Line of Credit – The maximum loan balance extended to the borrower.

Liquid Account – An account that allows you to withdraw money at any time without penalty.

Loan – Funds borrowed that must be repaid.

Mortgage Insurance Premium (MIP) – Insurance required on an FHA loan.

MSRP – Manufacturer suggested retail price.

Overdraft – Withdrawing more money than is in the account. Usually a fee is charged when this happens.

Principal – The amount borrowed or invested.

PI – Principal and interest on a loan.

PITI – Principal, interest, taxes, and insurance. These four factors make up your monthly mortgage payment.

Private Mortgage Insurance (PMI) – Insurance required on a conventional loan if a 20% down payment is not made at closing.

Real-Estate Investment Trust (REIT) – A portfolio of real-estate assets in which investors pool their money and then earn a portion of the income generated.

Repossession – A process where a lender takes possession of an item when the buyer fails to make loan payments.

Revolving Credit – An amount of credit is always available and periodically paid back.

Robo-AdvisorInvestments made based on computer algorithms.

Roth IRA – An individual retirement account that allows you to contribute after tax dollars, and investment gains are not taxed at withdrawal.

Secured Loan – A loan in which the borrower pledges an asset (collateral) that will be repossessed in the case of default on the loan.

Standard Deduction – A fixed deduction amount taxpayers can claim on their tax returns, the amount of which varies depending on filing status.

S&P 500 – A stock market index of the larges 500 companies based in the U.S. Also an indicator of stock market performance.

Stock – A share in ownership of a company issued by the company in order to raise money to grow.

Stock Broker – An individual who buys and sells stock on behalf of clients on a stock exchange.

Traditional IRA – An individual retirement account that allows you to contribute before tax dollars, with taxes being paid on investment gains at withdrawal.

Trust Fund – A legal entity that holds property or assets on behalf of another person or group.

Unsecured Loan – A loan supported by the creditworthiness of the borrower rather than collateral.

Variable Interest Rate – The interest rate does change over the life of the loan based on market interest rate changes.

Veterans Affairs (VA) Loan – A mortgage loan back by the Department of Veterans Affairs available to current and former members