How to Use A Personal Loan for A Major Purchase

Golden coins pile and icons

OK, I’ll admit it. This probably sounds like a silly question. Why would we even open with something so… obvious?!

I’m glad you asked.

Too many times, we dive into new debt without fully thinking through what we’re committing to. If we don’t fully understand what we’re applying for, we can’t properly determine whether or not there may be loan options that make more sense for our situation. There are as many varieties of loans as there are borrowers and lenders, and unless we stop and think about the specifics of what’s in front of us, we’ll most likely agree to the first offer that waves “low monthly payments” or “zero percent interest” in front of us like a hypnotist’s shiny watch.

Any offer that doesn’t hold up well to a few simple questions probably isn’t a very good offer.

Use Your Personal Loan In The Best Way

The “personal” part means you’re taking out this loan based on your individual credit score, your credit history, your current income and employment, and your assurance of repayment. The funds aren’t committed to purchasing a home, a new vehicle, or starting a business. With most personal loans, once approved you can do pretty much anything you wish with the money. If you’re taking out a personal loan for a major purchase, the assumption is that you anticipate a major purchase of some sort – but that may not matter to the lender. What matters to the lender is how likely you are to make your payments on time, every time. Unless your purchase is specifically required as collateral on the loan, it’s only a personal loan for a major purchase because of YOUR decisions and goals.

Most personal loans are “term loans”. These are the most standard sort of loans with which most of us are familiar. You reach an agreement with a lender to receive a lump sum upfront, and you repay it over a set amount of time in regular monthly payments until the loan is paid in full.

Secured and Unsecured Personal Loans

A personal loan for a major purchase can be “secured” or “unsecured.”

“Secured” means you’re offering the lender some form of collateral – your home, or automobile, or perhaps the item you’re purchasing. If for any reason you’re unable or unwilling to make your payments, the lender has the right to take possession of the collateral to recoup their losses. Because the lender is protected in this way, secured loans are often easier to get approved even with less-than-perfect credit. Sometimes you can negotiate lower interest rates as well.

An “unsecured” personal loan for a major purchase relies entirely on your credit history and personal guarantee for approval. Lenders may require higher credit scores to approve unsecured loans, and interest rates will likely reflect their higher risk. On the one hand, you’re not risking personal property if anything goes badly; on the other, the loan will probably cost you more and defaulting will seriously damage your credit. Secured or unsecured, you want to make sure you’re able to make each and every payment on time, every time.

How Much Interest Will I Pay On A Personal Loan for a Major Purchase?

“Interest” is the primary cost to you of borrowing money. There are sometimes other fees or extra charges for late payments. But interest generally makes up the bulk of the lender’s profits. Most basic personal loans carry a fixed interest rate. Your monthly payments remain the same each month until paid in full. And you know the day you agree to the loan exactly what it will cost you and the date of your final payment.

Some lenders will offer adjustable-rate interest for personal loans as well. These usually start off at a lower interest rate, but after a set amount of time can rise or fall based on current market averages. The lower initial rate is tempting for many borrowers, but over time loans calculated under this method tend to cost more than locking in a set rate at the outset. That’s the risk of adjustable rates – you can’t predict for certain which way rates will go during the life of your loan.

Whether fixed or adjustable, your interest rate will largely depend on your credit history and your current three-digit credit score. If you shop personal loans today, you’ll find rates from major lenders are running anywhere from the single digits – around 7% or so – to 35% and higher. With a little searching, you’d no doubt find someone offering lower rates in the right circumstances. I’m positive there are other folks paying far more. It all depends on your specific credit history and timing.

What Determines My Interest Rate?

The stronger your credit history, the better the rates available to you. This doesn’t mean that every lender will offer you the same rate, however. Different lenders weigh the same factors in different ways. Some are quite myopic about your credit score and barely pay attention to anything else. Others look at your credit history to see what sorts of debt you seem to do well with and which sorts have led to difficulty. A chain-store retailer, for example, may give extra attention to your track record paying on store-issued credit cards and less attention to outstanding medical debt that hurt your credit score years ago.

In short, interest rates are strongly shaped by your credit, but they’re not 100% determined by it. Be prepared to do a little personal loan shopping until you’re confident you’ve found the best terms available to you.

Factors that Determine Interest Rate
  • Credit Score
  • Credit History
  • Employment Type and Income
  • Loan Size
  • Length of Term

Your Credit Determines Terms for Your Personal Loan

In the same way, your current credit history and three-digit credit score shape the rates and other terms available to you, the way you handle this loan going forward shapes your future credit history and credit score in return. As you make your monthly payments, your credit history grows stronger and your credit score gradually rises. It takes time to build, repair, or strengthen credit – but it may not take as long as you think it will.

One day, you’ll need financing again. You’ll want to make another major purchase, finance a vehicle, buy a house, pay for a wedding, or go on a vacation. The amounts and terms available to you when that day comes will be largely shaped by what you do between now and then. If you have good credit, you can make it better. If you have no credit, you can establish it between now and then. And if you have bad credit, you can start fixing it.

It may not be easy, but it doesn’t have to be as hard as it sometimes seems. And you don’t have to do it alone.

Should I Use My Savings Instead?

This isn’t a bad idea, especially if you’ve been saving up specifically for whatever it is you’re about to buy. On the other hand, you don’t want to empty your emergency funds or other savings accounts if you can avoid doing so. It’s sometimes worth financing small purchases (anything that costs less than a new car, for example) in order to keep money in reserve.

That’s assuming we have savings, of course. As Forbes recently reported, more and more of us are living paycheck-to-paycheck these days.

A new survey shows that 49% of Americans expect to live paycheck to paycheck each month this year. More strikingly, 53% say that they don't have an emergency fund that covers at least three months of expenses. At the same time, 91% say they want to develop better money habits this year.

They’re talking about our language. Taking more effective control of your personal and small business finances is what Loanry and the rest of the Goalry family are all about. It’s why we keep sharing these articles and offering free access to online money management tools. It’s also why you should keep reading.

If you can realistically put off your major purchase for another six months or a year until you’ve saved enough to simply pay cash, that’s often ideal. If not, the first “better money habit” you might want to develop is taking the time to explore your financing options before you buy.

Why Not Use Credit Cards?

You can certainly use your credit cards to purchase appliances, home electronics, or whatever else you need. It’s important to consider several things before making that decision, however.

High Interest-rate

Credit card interest tends to be higher than the rates you may be able to qualify for on a personal loan for a major purchase. A few percentage points may not seem like a big deal on paper, but over time, the dollar difference adds up faster than you’d think.

I’m sure you’ve noticed that paying your minimum payment on your credit card bill doesn’t seem to lower the balance very much from month to month. That’s because credit card billing is intentionally set up to keep you paying interest each month and very little towards the principal. A personal loan is a term loan. Your payments are the same each month and you know exactly when it will be paid in full. There’s no temptation to pay just enough to get by until next month.

You Shop More Than You Need With The Credit Card

Finally, credit cards make impulse buying much easier than it should be. You are thinking to buy a new laptop or desktop pc and you see in the store – it’s shiny and new and the description makes all sorts of promises. The plastic practically leaps out of your wallet or purse, begging to be used. How often have you been excited about a major purchase only to realize a few days later that you overlooked something very important to you in the excitement of the moment? That you probably didn’t need the “extended warranty” or should have negotiated better delivery options? Plus, it never hurts to let the salesperson see that you’re a methodical shopper, not likely to pull the trigger five minutes into your first visit.

Then again, getting a personal loan for a major purchase isn’t the time-consuming, laborious process it was a generation ago. You can log in from any connected device and in a matter of minutes submit your information.

“Zero-interest” Trap

So you’re at the electronics store, and there’s the amazing new 240” HD Quantum Plasma something-or-other TV and home entertainment system you’ve been lusting after ever since you first heard they were coming out. Or maybe your wife or girlfriend wants you to buy a brand new washer and dryer. The salesperson asks if you have any questions, then casually mentions that they have “interest-free” financing or that you get special terms if you sign up for one of their store credit cards today. Awesome, right?!

Well, maybe. Sometimes major chain stores offer promotional financing similar to what automobile dealerships do periodically. It’s possible that if you look over the details, you’ll discover it’s a pretty good way to get yourself that TV or entertainment system and finance it for practically nothing. The key is to really look at those details because other times you’ll find that “zero interest” only applies to the first few months, after which all of that interest is suddenly added back in and you’re actually paying a rate closer to your age than your shoe size. And most credit cards from chain stores are just that – credit cards. You may save a few points here or there when you use them at that store, but otherwise, they have the same advantages and disadvantages as any other card.

Be patient and Compare All Loan and Credit Card Options

Store financing isn’t always bad. Like so many things, it’s all about knowing what you’re getting into. Compare the terms you’re being offered to those you get on your existing credit cards, then compare both to the terms you could get with a personal loan for a major purchase. You might be surprised how much difference you’ll find.

Oh, and by the way… are you SURE you need that 240” HD Quantum Plasma whatever-it-was? I mean, that thing will hardly fit in your house. Did you notice the great price on last year’s latest and greatest home entertainment system – the one they’re replacing to make room for this one? Ask your salesperson about that one; I’ll bet you could get a pretty good deal.

How About Rent-to-Own Places?

No. Just… don’t. Unless you for some reason need to fill a living room or office for a month or two then return it all, there’s no point even walking into most of these places. I’m happy to talk pros and cons of credit cards, dealer financing, personal loans, how to lower your interest, when to consider refinancing, etc., but if you’re seriously considering rent-to-own, I respectfully advise you save yourself some trouble. It’s better to simply withdraw all of the cash you have in your account and go throw it into the street and walk away.

Start Looking For Personal Loan Online with Your Cup of Coffee On The Table

The explosion of the internet in the 21st century has opened up possibilities inconceivable a generation ago. That includes a plethora of online lenders with low overhead and national reach. Have you ever noticed that in almost every other industry, companies compete for your business? In traditional lending, however, you’ve been expected to persuade financial institutions to accept you as a customer. That’s backward.

At Loanry, we maintain a curated database of reputable online lenders. When you’re ready, let us know a little bit about you and what you need. And we’ll hook you up with a lender we think is most likely to win your business. In other words, the lenders compete for you – not you for them.

It’s always up to you, of course. If you don’t like what they offer, you walk away – no cost, no-obligation, no hurt feelings. But I gotta tell you, from the feedback we get, that doesn’t happen very often. It turns out we’re pretty good at this, and oddly, we enjoy it.

When you’re ready to explore that personal loan for a major purchase, let us know.

Benefits of using an online personal loan

In Conclusion

If you’ve decided it’s time to make the move and finally get new tv and audio equipment or replace those old kitchen appliances, then it’s also time to talk about a personal loan for a major purchase. You have several options.

Your local bank or credit union may be willing to consider extending your credit for purchases like these, assuming you have pretty good credit and can document your income from the past several years. It’s also helpful if you have an existing relationship with the institution – maybe a checking or savings account you’ve had for a while. We’ve already looked at credit cards and store financing as options. And you’ve probably figured out I’m not a fan of rent-to-own.


Should You Get A Personal Loan for Home Improvement Projects?

When I first bought a home, it was one of the hardest experiences of my life. It was something that I had been looking forward to for years, but it wasn’t what I expected. There was so much to fix up, and really not enough time to do it.

Home is where the heart is. It’s cliché, but it’s true. I spend the most time here. This is where my family lives, where we grow, and change and where we want to grow old. Since we also spend more time there and our needs continue to change, it’s also the place where we need the most funds for upkeep and maintenance. On the one hand, it’s my dream house, the place I can be happy and fulfilled, but it’s also the most expensive money sink.

What type of loan is best for home improvements?

I can get home improvement loans from a number of different sources. The most logical sources are via my local credit union or bank, but there are other options as well. I’ve also been looking at making my home more energy efficient, with green technology and other environmentally friendly improvements. Those great energy efficiency improvements also make sense from a cost-to-benefit point of view.

Home Equity Loans or Home Equity Lines of Credit (HELOCs are most popular):

With the home equity loan, I can borrow against the equity in my home, usually all at once. This is probably the most common home improvement that exist. That gives me cash-on-hand to work with for my home improvement projects. It’s like a credit card, since I can just borrow the amount I need and then pay it right back. It can be quick-and-easy.

Smart Money Tip!

My other important consideration is the fact that a home equity loan can be a tax deduction. On the flip side of that, though, you must be sure that you will be able to pay the loan back (with the closing costs figured in as well). Since my home is taken as collateral, there’s also the chance that the lender will foreclose on my house if I can’t make the payments, which is never a great proposition.

Credit Cards for Home Improvement:

I’ve covered previous home improvement expenses and other unexpected costs with a credit card, savings, or even borrowed funds. But home improvement is so expensive. It doesn’t take long for all the back-up credit cards and other loan options to dry up pretty quickly. It quickly becomes obvious that I need to explore other alternative funding sources as loan options.

Title I Loans:

The Title 1 Loans are available from the U.S. Department of Housing and Urban Development for home improvements and renovations. It’s an attractive option, because I am not required to have a minimum income requirement or credit card score. I can be eligible based on ownership of my house for 90 days, but also based on owning property with a land contract.

Using your 401k

Depending on the project, though, I might not have enough time to determine how to pull money out of my 401k. Then, it also takes time to fill out the form and get all the paperwork processed and approved so that I can borrow from my 401k. Of course, there’s also the substantial penalty for pulling the money out early. Even if and when you pay the money back, you’ll end up with less money in your account at the end of the exercise. All taken together, it can just be a pain to tap into funds from my 401k.

Personal Loan for Home Improvement vs. Lines of Credit/Above Options

Not every home improvement loan is the same. I’ve found that a number of options for payment and financing exist and they vary depending on when I need the money and how much equity I have in my house. It also depends on how much the project will cost, and whether I’m planning my project with a larger overall scope. The process of my home improvement loans also depends on the payment options that will work best for me. The best option for me will also depend on what form of payment that I want to use for my home improvement loan.

A home renovation loan doesn’t always need to be completed right away, but it often feels like there’s a sense of urgency. I feel like I have to home improvement loanmake the decision right away and need to get the house fixed. I need to move forward with my life and just get it done. But this is the perfect opportunity to really take a step back and reflect on what I need, what I’d like to accomplish, and what the very basic requirements are for accomplishing my goals. The best step forward is to take a breath, reflect and plan. Here are some top considerations for home renovation:

  • Make a Budget: How much money do I need? What will I need to cover? This must include the costs for materials and supplies, as well as any labor estimates for contractors that I need to bring in.
  • Keep Track of Expenses: I need to carefully track receipts and expenses. One of the biggest stressors in a home renovation project is the “creep” of vendors, materials and supplies. I need to track all the expenses, and not let job delays kill my budget.
  • Make Sure Your Paperwork is in Order: It’s not always easy to organize all my financial records, including student loans, mortgages, bank accounts, etc.

While I may not need all that paperwork for a home renovation personal loan, it’s always a good idea to determine exactly what assets and expenses I have. It would be nice if the assets miraculously multiplied, but just knowing what I have does help too.

Unsecured Loans – Personal Loan for Home Improvement

Unsecured loans are considered “personal loans.” Since it doesn’t involve any collateral, financial institutions consider these types of loans bigger risk factors. That risk factor also means that banks usually prefer to already have a relationship for bank credibility. They must trust me and feel sure that I will pay back the loan as promised. But based on that trust, they may offer me a better interest rate.

Bad credit can also be a factor. As you’ve already seen, your credit can affect your financial situation. It might be more psychological than actual. Your bad-credit perception may have made you not attempt to access other funding options. Of course, you need to research your credit score. A personal loan for a home improvement loan may be more accessible than you’d imagined.

Secured Loans – Another type of Personal Loan for Home Improvement

A Secured Loan typically involves some kind of collateral (a house, car, boat, or other valuable item). The rate of interest and terms may vary. It’s often easier to get a secured personal loan for a home renovation project from a financial institution because they are holding the asset if you default on the loan.

The options for personal loans sometimes really seem endless. That may just be because there are lots of options, and they are all designed to fulfill various requirements. I’m glad to know that there are options that will help me. So, why take out a secured loan? The most obvious reason is because I need it, but there are a few more salient reasons. Here are some top reasons why I’ve considered (and taken out) loans in the past.

At this point, it really doesn’t matter why I need a personal loan for home improvement projects. What is important is getting the money that I need. It’s essential. Then, the next step is to evaluate my options for personal loans. I need to know what options are available, the costs, and the pros-and-cons. I also need to be aware of how that loan will affect my future financial health.

It’s difficult to take a step back and really study my situation, particularly when I’m right in the midst of an emergency (it’s too stressful). When I need money right away, I just want to drop everything. We can’t give in to panic, though. I need to take time and carefully analyze the options that are available to me.  (And you do too.) Which option will be the best?

Other Options:

By the time I’m looking at loan options, I’ve already taken a look at other options.  So, if I’m still looking for more options, the money situation is just that bad. I have probably already tapped out on all the other finance and credit solutions. I’ve covered previous expenses and other unexpected costs with a credit card, savings, or even borrowed funds. There comes a point, though, when all my other funding options are used up or non-existent. So, then, I begin the process of searching for alternative funding sources. That guaranteed loan option is sometimes the next best step. It’s the only solution that’s left to me.

Home Repairs is Another Use over a Remodel

Your Guide to Personal Loans for Emergency Home Repairs

A personal loan can be used for just about any reason. Sometimes emergency home repairs just come up for unexpected reasons. Perhaps, you need a loan to take care of the home emergency. These can be called home repair loans, personal loans for home repairs or what ever you’d like. In the end, you’re borrowing money to cover the cost of an emergency in your home, condo or apartment. You’re taking out a personal loan. Typically, you need cash fast for a emergency at home and as always you want make sure to pay it back as soon as possible.

Can I get a personal loan for home improvement projects?

Sometimes a personal loan is the only way to really get to the home improvements that I want and need. While home always has felt like a dream. There’s something about actually owning a home that makes everything come crashing down. It’s so expensive. Even the most basic renovations really add up in time and cost, so it becomes really difficult to fix up my dream house when my finances just make it impossible to support even the slim slice of those machinations. Who has a whole truckload of money and supplies just lying around to make that dream house a reality?

There are solutions that are really easy to understand, and just what they sound like: personal loans for home renovations.  While it would be nice to have ready cash lying around to cover every fix-it-up expense and consideration, that’s not the world I live in. In my world (the real world), I make arrangements for repayment over a period of months and years, depending on the value of the loan. With costs that quickly ramp up to, how else do I easily just fix the house and make sure it’s safe for my family. Fortunately, I’ve found solutions that can help: home renovation loans.

When I am broke and faced with the real costs of home renovation, my credit score and employment history are important factors. Obviously good credit might make my search for a home renovation loan easier, but bad credit does not ruin all my chances. And, it may actually be a positive thing for me to take out a loan. Here’s why:

  • If I take out a home renovation loan, and then pay it off, it might just go toward rebuilding my credit. It could help me to get my finances back on track.
  • Then I can also dig into my overall credit situation, learn as much as I can and start to find out what has caused my poor credit.
  • Finally, I can also work on improving my credit score before you take out the loan.

Bad credit makes my situation more complicated, but I know that I can turn it around. Instead of focusing on all the negativity, I can focus on what good might actually come out of this entire educational experience.

Where to Get A Personal Loan for Home Improvement Projects

Personal loans for home improvement projects are usually easier to get because there’s less risk for the lender. They are typically tied to a paycheck, a bank account, a car title or some other form of collateral. So, there’s the sense that it’s a “safe” investment. In other words, it’s tied to the things of value that I have available at my disposal, even though I don’t have the money right now to pay for fixing my car or buying groceries.

With my already bad credit, I just don’t have good access to financing. I don’t have the ability to use my credit card or other line of credit to finance emergencies or unexpected expenses. So, I look to personal loan options to cover flexible financing solutions or those unexpected expenses. It’s a pretty straightforward process though.

  • I fill out the paperwork, being sure to include all the details they’re requesting.
  • Depending on the type of loan that I get, I may be required to give the lender access to my bank account.
  • Alternatively, I may have to write them a check, which they will cash when the payment is due. The amount will cover the loan plus the finance fee.
  • The lender processes my information and determines how much (or if) they can offer me the loan.
  • I (hopefully) receive the loan in the form of a check, cash or money transfer—typically in 24 hours or less.

At this point, it really doesn’t matter why I need the guaranteed loan. What is important is getting the money that I need. It’s essential. Then, the next step is to evaluate my options for guaranteed loans. I need to know what options are available, the costs, and the pros-and-cons. I also need to be aware of how that guaranteed loan will affect my future financial health.

It’s difficult to take a step back and really study my situation, particularly when I’m right in the midst of an emergency (it’s too stressful). When I need money right away, I just want to drop everything. We can’t give in to panic, though. I need to take time and carefully analyze the options that are available to me.  (And you do too.) Which option will be the best?

What Loan Solutions Will Work?

There is always a myriad of options to consider no matter what my financial history is. Some solutions will just work best for me in the short-and-long term. My goal is to use the solutions that will help me build my credit and successful navigate the hard times until I can climb out the other side. It’s not always easy, but it’s great to know that there are loans that will allow me to survive those unexpected emergencies. I just need to review the pros and cons for each possible solution and then move forward strategically with what I need.

How can I find a Personal loan for home improvement projects?

I get it. Everything is expensive. Eating and fixing my car sometimes even seems like a non-essential luxury. But I do have those essential requirements that I sometimes just can’t do without. That’s why it’s great to know that there is a loan I can get to cover those unexpected bills. All of those expenses and bills add up, particularly with kids. But, where do I start, and how easy is it to get a loan when I need it for the amount I really can’t do without?

I need to check my credit first to get a sense of which type of finance option I need, or which one will fit with my financial situation.

I also need to figure out where to get a loan. Based on my credit score and loan amount needs, here are tools to help you find a lender when searching for personal loans for home improvement projects:

  • Short-term more small dollar loan lenders can be found on
  • or use, which offers higher dollar personal loan lenders and many other types of finance products.

emergency repair loans

These sites are not lenders themselves, they simple help you find a lender.

There are always risks when I borrow money. After all, I need it, so I’m willing to go the extra mile to cover my broken-down car, unexpected expenses, bills, or grocery list. Probably the largest danger is that I would just not be able to pay the loan back at all, and I could be charged additional fees and penalties in addition to the interest rate. Of course, another consideration is that I could further damage my credit or incur other liabilities.

I don’t always realize what kind of impact my credit score, payment history and credit usage will really be. (It’s not always as bad as I’m imagining.) So, the first step is to determine what my credit score is, and also what factors are affecting that rating. Equifax, Experian and TransUnion are the three credit reporting agencies, so I go there. I can access my credit score from a number of online portals and financial-planning resources.

As part of my credit research, I can also determine factors that may have downgraded my credit, including how solid my payment history has been and also how much credit I’m already using. This whole process goes far beyond just checking the accuracy of those credit reports, though. I also really want to learn what actions I must take to improve my financial health in my current situation.

It’s really not as difficult as I thought. That’s what really excites me. I want a solution that will be quick and easy. But I need a loan that will allow me to live my life and not worry so much. Is that too much to ask for? I want to enjoy life again. It looks like a loan finance solution can help me. For that, I will be forever thankful.

Personal Loan for Home Improvement Projects As Soon As Tomorrow

I’m looking into the best (and easiest) options for a home renovation loan. Unsecured personal loans online allow me to take out a loan that will take the edge off. It can make the planning process that much easier. And, with, I can find a personal loan lender with less hassle. I can get an emergency cash loan or even a rent loan within budget. It’s fast, painless, and might even get me back on the right track.


Common Loan Definitions and Related Terms: Lending 101

The Merriam Webster dictionary defines a loan as a temporary lending of money to an individual or organization with an interest rate attached. Of course, while the dictionary makes it sound simple, loans are a little complicated.

An Abridged Dictionary of Loan Terms and Definitions

When you begin looking for a loan, you hear a lot of unfamiliar terms. You need loan definitions. Your lender probably won’t sit down and explain them all to you. We will. This glossary explains loan terminology in the most straightforward manner as possible. It breaks the terms down into categories that reference the context in which you’d read the term.

Loanry does not lend money. We function to help you find a lender. We set up a loan mall so you can easily shop personal loans among many lenders, almost as easily as you could visit a shopping mall to pick up a new pair of jeans. Because of this, we just do not have contact with you; your lender does. So, we want you to understand the loan procedure basics and loan terms. We find it better to educate you and give you the tools. The Loanry team wants you to ultimately save money. If you do decide to borrow then please use our library of personal finance education tools to borrow smart.

We are not trying to frighten you with this huge list of terms, but financial institutions use their own lingo. You will get a much better loan deal if you understand what the lender refers to with each term and know what it will cost you. We’ll break this up into types of loan definitions, for example, explaining fees in one section and references to loan terms in another.

The great news is that once you learn the lingo, it remains the same regardless of the loan type or the type of lending institution you find. Whether you need a student loan or a home loan or a car loan or some other type of loan, these terms apply to every situation.

General Loan Terms 101

Loan Terminology

Let’s start with the loan definitions you will come across regardless of the type of installment loan you consider. You’ll read these terms in all types of loan documentation.


This refers to the equal loan payments planned out during a specified period to pay off the debt on time.

Amortized Loan

An installment loan also gets referred to as an amortized loan due to its planned series of equal installment payments that repay the loan amount, plus interest without the need for a balloon payment.

Anniversary Date

The annual anniversary of the loan. The initial anniversary date occurs on the twelfth payment’s due date. Thereafter, it occurs on the same annual date noted on the MOP Promissory Note.

Annual Percentage Rate (APR)

The percentage rate referring to the amount of interest charged on the loan.

Balloon Payment

A final payment to fulfill the promissory note on an installment loan in order to discharge the debt. The balloon payment is typically much larger than the monthly installment payments.


The lender listed on the promissory note that is secured by a deed of trust.


The person eligible for the loan and who carries the primarily responsible for its repayment.


A term that refers to one of the five criteria that lenders use to determine whether to extend a loan to you. Lenders base your character on your credit score and credit history.


Five Cs of CreditA term that refers to one of the five criteria that lenders use to determine whether to extend a loan to you. Lenders determine your capacity or ability to repay a loan, based upon your monthly income and your outstanding financial obligations.


A term that refers to one of the five criteria that lenders use to determine whether to extend a loan to you. Collateral refers to the property of merit you provide as a guarantee of re-payment when you apply for a secured loan.


A term that refers to one of the five criteria that lenders use to determine whether to extend a loan to you. Capital refers to your savings or other assets a bank can claim if you default on the loan.


A term that refers to one of the five criteria that lenders use to determine whether to extend a loan to you. The conditions of your loan describe how you intend to use the loan.


This refers to an extra payment that reduces the loan’s principal balance before the final balloon payment.


Essentially, failure to repay the loan as specified in the Deed of Trust or Promissory Note.

Demand Note

The term demand note refers to a loan the lender can recall at any time that has no fixed term or repayment schedule.

Friendly Loan

The phrase friendly loan refers to a financial agreement between friends, family, or business associates. These rarely have legal documentation since they are typically verbal agreements. This makes it tough to legally challenge them.

Loan Commitment

The term loan commitment, also called loan approval, refers to the letter issued by the lender that commits to funding for the specified borrower and property. It contains conditions that must be met prior to funding the loan. It expires 60 days from its date of issue.

Loan Denial Letter

A letter from the lender that denies a loan to the specified individual. Depending on the type of loan, the letter may state the denial reason. These reasons may include credit history or score, inadequate monthly income or lack of verifiable liquid assets.

Loan Servicing

The process of operational procedures management and the collection of payments related to a loan.

Loan Underwriting

The process and procedures of risk analysis including loan factors such as credit score and history, assets, employment, etc. used by a lender to determine whether to extend a loan to an individual.

Loan Withdrawal Letter

A letter from the lender acknowledging a borrower’s desire to withdraw their loan application/approval from the lender. It may or may not state the reason for withdrawal.

Home Loan/Mortgage Specific Terms

Some loan definitions only apply to property purchases. These terms apply to home loans, mortgages, investment property, business properties, etc. If you visit Accury, our real estate related partner site, you’ll come across many of these terms.

Appraised Value

The monetary value of a single-family home as determined by an approved appraiser.


A person who assumes loan responsibility, but does not take a title interest or live at the property.

Close of Escrow

The legal meeting at which the property officially and legally transfers between the lender, buyer and seller.


A second individual who assumes responsibility on a loan. This person also has a title interest in the property, meaning they co-own it, and they intend to occupy it as a primary residence.

Date of Recordation

The date on which a deed of trust is officially entered on the books of the county recorder in the county in which the property is located.

Deed of Trust

Sometimes used instead of a mortgage, this financial security instrument conveys the property’s title in trust to a third party to ensure the payment of the promissory note. When the borrower pays off the loan, the deed transfers to the homeowner.

Down Payment

The initial payment offered for the purchase of a piece of real estate. The loan amount covers the difference between the real estate’s purchase price and the loan amount. While some loan types, such as VA loans, allow for a borrower to forgo a down payment, the typical amount is at least 10 percent of the home’s purchase price.


Equity refers to the property’s fair market value less the current debt on the property. You can leverage the equity on your property to receive a loan, also called an equity line of credit.


In escrow, a third party handles the funds disbursement and paperwork as an agent and intermediary for the buyer and seller.

Escrow holdback

When the home needs repairs or treatment for termites, the firm handling the escrow withholds funds until the repairs or treatment is complete.

Evidence of Insurance

This insurance document confirms the property is insured by a homeowners’ policy. This is not a copy of the insurance policy, but a letter or statement of commitment to insure a specific property beginning on a given date at a specified premium.

Hazard Insurance

This is more commonly referred to as the homeowner’s insurance policy.

Home Improvement

Repairs and/or additions made to better the status of the permanent structure of the primary residence.

Home Loan Coordinator

The person designated by the Chancellor of each campus and Laboratory Director as the Home Loan Coordinator. This individual serves as the primary contact at the campus level for loan applicants.

Homeowners Association

An organization of homeowners residing within a particular development whose major purpose is to maintain and provide community facilities and services for the common enjoyment of the residents.

Homeowner’s Insurance Policy

An insurance policy available to owners of private dwellings that covers the dwelling and contents in the case of fire, wind damage, theft, and, personal liability. The typical policy does not include flood or earthquake coverage.

HUD-1 Closing Statement

A document required by the Department of Housing and Urban Development (HUD) that discloses all financial information related to funds received and disbursed at a loan’s closing.

Inspection Reports

This term refers to reports generated by the inspector the borrower hires to assess the home’s condition before closing on the home. These usually include a home inspection report and a termite report. The home inspection may include specific detailed reports on the condition of the foundation and roof, as well as, a geological report and a septic tank inspection, when a septic system is present.


Interest has two meanings. The first is a reference to the annual percentage of the loan you will also re-pay in consideration for the loan. The second meaning is also a business term meaning a share, title or right in a property or business.

Joint Tenancy

Joint ownership by two or more persons giving each tenant equal interest and equal rights in the property, including the right of survivorship.

Lender’s Escrow Instructions

Instructions produced by the Office of Loan Programs for an escrow or title company detailing the documentation and procedures required before a loan is funded.

Loan-to-Value (LTV) Ratio

The ratio of the principal balance of a mortgage loan to the value of the securing property, as determined by the purchase price or Appraised Value, whichever is less.


The lender that holds the Deed of Trust or mortgage.


The borrower who named on a Deed of Trust or mortgage.


The process of paying off an existing loan and establishing a new loan.


The restoration of the primary residence. Generally, this includes repairs, improvements and additions to the permanent structure of the primary residence.

Monetary Transfer Terms

Some loan definitions you need to know, refer to the manner in which loan monies transfer from the lender to the borrower.

Automated Clearinghouse (ACH)

A money transfer network that electronically transmits funds from one participating financial institution to another.

Electronic Funds Transfer (EFT)

Electronic Funds Transfer (EFT) refers to the actual transfer of funds through an ACH. In loan terms, it refers to the transfer of the loan amount electronically from the lender to the borrower. Other EFTs include direct deposit and debit card transactions.

Types of Loan Definitions

You’ll find many types of loans available. Financial institutions specialize. Some offer credit cards, some offer mortgages, some offer unsecured loans and some offer many types of loans. Here are the unusual terms you might come across when exploring loan types.

Bridge Loan

A loan type used in real estate with a loan term of less than 12 months. Considered a temporary loan, the bridge loan provides the borrower the net proceeds from an impending home sale so the borrower can purchase a new home. The borrower repays the loan with the proceeds of the home sale.

Deferred Payment Loan

A loan that defers all monthly interest and principal payments to the promissory note’s maturity date. The loan principal balance, plus the accrued interest comes due when the deferment ends. These are common with student loans.

Graduated Payment Mortgage

You will commonly see this written as GP-MOP. It refers to loan type related to the Mortgage Origination Program (MOP) that provides an initial lower interest rate than the standard rate. There minimum rate is 2.75 percent. The interest rate will annually increase by 0.25 percent to 0.50 percent until it equals the standard rate.

Interest-only Payment Loan

This type of loan does not amortize. During the loan term, the borrower pays only the interest each month. They re-pay the principal as a lump sum when the length or the loan term ends.

Unsecured Loan

This type of loan typically charges higher interest rates but requires no collateral. Credit cards and student loans are the most common types of unsecured loans. This is the most common type of consumer loan.

Fee Definitions

Getting a loan entails much more than the interest rate and the amount of the loan. You’ll incur a number of fees. Here are the definitions for the fees your lender will charge.

Application Fee

A nominal charge, typically of $50 or less, that accompanies the loan application. You pay this fee at each lender, for each loan application submitted. If your loan application gets denied, you will get charged another fee if you re-apply. Some lenders waive the re-application fee if you have good credit.

Administration Fee

You’ll incur the administration fee to process the loan application. This charge ranges between $35 to $50. Some lenders bundle this into the application fee.

Origination Fee

The origination fee typically amounts to about ten percent of the loan. It can be charged in addition to application and administration fees or in addition to them. It is paid from the loan monies, for example, if you apply for a $1,000 loan, you’ll receive $900.

Late Fee

You only incur a late fee if you pay your monthly payment late or miss your payment. These range from $30 to $37. You get charged for each late payment. You may receive one-time forgiveness of this fee, if your lender offers it.

Prepayment Penalty Fee

Your lender counts on making back the cost of loaning you money by charging interest. If you try to pay it off more quickly, by making double payments or large lump sum payments, in addition to your monthly installments, you’ll pay a fee. It is a hefty fee, generally amounting to about 80 percent of six months of interest.

In Conclusion

The plethora of terms and loan definitions can seem overwhelming but we hope this short glossary helps you better understand them. Loanry wants you to find a lender for your financing needs. We try to make it easy for you to find lenders and their loan offers. While we cannot promise you will find a lender here that can get you a loan, we can make it as simple as possible for you to look for the right lender who can help you. We even offer money tools to help you compare different types of lenders.

Our service lists numerous types of personal loan options from a plethora of lenders. These consumer loans include credit cards, installment loans, payday loans, mortgage loans, student loans, car loans, and more with both short-term and long-term options. Our loan mall has lenders who offer high and low-interest rates. You’ll find options for those with great credit, bad credit, and no credit. Print this article or keep it open in a separate browser window while you loan shop. That lets you refer back to it easily. Make your loan search simpler. Start at Loanry and find the lender you need. Loanry connects you with reputable companies that may give you a loan if u qualify for it. You can check whether you qualify right now, by putting in your information below. We do not loan money, but we do make it easier to help find a lender for you.