Annual Percentage Rate (APR) – The cost of credit expressed as a yearly rate and include your annual interest rate and any additional periodic costs, e.g. annual fees.

Compound interest – Interest computed on the accumulated unpaid interest as well as on the original principal.

Consumer finance company – A company providing financial services such as installment and home equity loans. They are regulated under provincial laws.

Credit – An amount extended by a lender against which the borrower may draw, by charging purchases to a credit card or withdrawing funds from a line of credit, for example; it lets you obtain goods, services or money now, in exchange for the promise to pay in the future.

Credit limit – The maximum balance you may charge on a credit card or borrow from a line of credit.

Credit rating – An appraisal made by an individual credit grantor of an individual’s credit worthiness to estimate his/her ability and willingness to pay credit obligations.

Credit report – A report of any card or loan that you hold, held in the past, or for which you have applied. It also includes the credit limits of those cards or loans and your payment history. It is used by lenders as part of the decision making process when evaluating whether to extend new or additional credit to a borrower.

Credit union – A cooperative organization composed of people who share a common bond, such as employees of a large company. Credit unions often offer their member’s specific benefits, such as lower interest rates.

Debit card – A card that allows you to deduct the amount of your purchase directly from your bank account for payment of goods or services.

Debt consolidation – A method available to consumers to better manage the amount of debt they carry. The consumer borrows from one lender an amount equal to the debts he/she owes to several lenders, and uses that money then to pay off those debts. Benefits of such a loan include combining all your monthly payments into a single payment and possibly lowering your overall monthly payments.

Down payment – The initial payment on a credit purchase made which is deducted from the principal balance of the loan.

Home Equity Line of Credit – This line of credit allows you to borrow against the value of your home. With a traditional second mortgage loan, the borrower receives the money in lump sum and repays it in regular installments over the length of the loan. The home equity line of credit is a revolving loan that allows you to borrow amounts up to your credit limit as you need them. As you pay back the money you’ve borrowed, your available credit is restored and you can borrow from the line of credit again. You pay interest on the amount outstanding.

Installment loan – A type of a consumer loan repaid in regular installments over a specified period. It is often secured for the purpose of consolidating debts, paying taxes or managing a single large expense.

Installment purchase – a loan specifically to purchase "big ticket" items, such as car or major appliances. A down payment is usually required and a contract is signed for a balance due, plus interest and service charges. The debt is repaid in equal installments over a specified period of time.

Interest rate – The rate that lenders charge their borrowers, which is the price paid for the borrowed use of money. It does not include any other costs incurred because of the loan.

Maturity date – The date on which final payment is due.

Personal line of credit – A type of credit which allows you to write yourself small loans using a cheques specific to that account. They require an agreement between you and the lender establishing a maximum credit limit and a repayment schedule for monthly installments when money is borrowed from the line of credit. If you have repaid the amount borrowed, the credit remains available to you to re-use. No payments or interest are due until you borrow from the line of credit again.

Prepayment privilege – An agreement allowing you to pay part or all of a loan in advance of a contracted due date.

Principal – The amount of a loan or the unpaid amount of a purchase before finance charges or other borrowing costs associated with the loan are either added or deducted; also known as amount financed.

Refinance – The rescheduling of payments on an installment contract; generally for smaller payments extending over a longer period of time.

Secured loan – A loan is granted against security (or collateral) owned by the borrower to decrease the risk assumed by the lender. Upon default (failure to repay the loan), the lender is entitled to take possession of the collateral as payment for the money owed.

Simple interest – Interest computed on the principal balance outstanding as long as any portion remains unpaid.

Unsecured loan – A loan based on the borrower’s past credit history and the lender’s assessment of the borrower’s intention and ability to repay the money borrowed. The lender has no security or collateral of the borrower’s to fall back on should the loan not be repaid as promised.

Variable interest rate – An interest rate that can increase or decrease over the life of the loan, based on fluctuating rates set by the financial institution, such as prime rate.