Personal finance is not an easy concept when confusing and overwhelming amounts of financial verbiage continually appear on the advertisements and websites of banks and other financial
institutions whom you are meant to go to for your answers. At Integrity Financial Services, we realize that the abundance of financial terms easily masks the important lessons and issues needing to be addressed in regards to your finance plan.
Here is a list of useful financial terms that you need in your mental dictionary to help better understand the world of finance.
• Collateral
Collateral is used to guarantee the repayment of a loan. If repayments are late, or the agreement is defaulted, the collateral is taken in place of the repayment.
• Secured and Unsecured Loans
A secured loan is one that has collateral back it up in the event of default, they usually have lower interest rates due to the fact that if payment isn’t made the lender has the ability to take ownership of the collateral and sell this to make up the money that they are still owed.
Accordingly unsecured loans are Loans that don’t have collateral. Instead they charge much higher interest rates so that if the repayment is unable to be made, the lender will already have received back much of his original capital and therefore make the smallest loss.
• Equity
Equity refers to the monetary value of a property or business after the amount that is still owed on the loan originally used to purchase it is taken off.
Equity, therefore, is linked to collateral in as much as it is the equity that an individual holds on their house that is considered as the collateral in mortgage agreements.
• Default
Defaulting is when an individual is unable to fulfill their obligations in regards to a financial agreement. Simply put, if you are unable to meet the payments of a mortgage, or of a loan, then this is considered defaulting.
These terms are only a small number of a much larger financial dictionary when concerning personal finance. Integrity Financial wants you to be prepared and informed when dealing with anything financial, as small errors can have critical consequences!