Glossary
Financial terms explained in plain language. No jargon, no assumptions—just clear definitions you can actually understand.
A
Amortization
The process of spreading a loan into equal payments over time. Each payment covers some interest and some principal. Early payments are mostly interest; later payments are mostly principal.
APR (Annual Percentage Rate)
The yearly cost of borrowing money, expressed as a percentage. It includes interest plus certain fees. A credit card with 24% APR charges roughly 2% per month on any balance you carry.
Asset
Anything you own that has financial value. This includes cash, investments, property, and valuables. Your net worth is your assets minus your liabilities.
B
Balance
The amount of money in an account, or the amount you owe on a loan or credit card. A checking account balance is money you have; a credit card balance is money you owe.
Bond
A loan you make to a company or government. They pay you interest over time, then return your original investment at a set date. Bonds are generally considered less risky than stocks.
C
Compound Interest
Interest calculated on both your initial amount and any interest already earned. It's why small amounts grow significantly over long periods—you earn interest on your interest.
Credit Score
A number (typically 300-850) that represents how likely you are to repay borrowed money. Higher scores usually mean better loan terms and lower interest rates.
Credit Utilization
The percentage of your available credit that you're using. If you have a $10,000 credit limit and owe $3,000, your utilization is 30%. Lower is generally better for your credit score.
D
Down Payment
The upfront cash you pay when buying something with a loan, like a house or car. A larger down payment means borrowing less and usually getting better loan terms.
E
Equity
The portion of an asset you actually own. In a home, it's the market value minus what you owe on the mortgage. If your home is worth $300,000 and you owe $200,000, you have $100,000 in equity.
I
Interest Rate
The percentage charged for borrowing money, or earned on savings. Usually expressed as an annual rate. Not quite the same as APR, which includes additional fees.
L
Liability
Money you owe to others. This includes loans, credit card balances, mortgages, and any other debts. Your net worth is your assets minus your liabilities.
M
Mortgage
A loan used to buy property, where the property itself serves as collateral. If you stop making payments, the lender can take the property through foreclosure.
N
Net Worth
The total value of everything you own (assets) minus everything you owe (liabilities). It's a snapshot of your overall financial position at a point in time.
P
Principal
The original amount borrowed on a loan, not including interest. When you make loan payments, part goes to interest and part goes to reducing the principal.
S
Stock
A share of ownership in a company. When you buy stock, you own a tiny piece of that company. Stock prices go up and down based on how the company performs and market conditions.