8 most common credit terms.
Understand credit jargon.
Professional words, terms and phrases can sometimes be confusing. When trying to understand how to improve and maintain your credit score it is important to understand commonly used credit terms.
1. Credit Agreement
After having your loan approved, you can expect to receive a credit agreement, which is the contract outlining the terms of the loan itself. This contract outlines (1) the amount of money that is being lent, (2) the interest rate per period or in total, (3) an initiation fee if applicable, and (4) instalments for paying off your loan in full. If you agree to these terms when you sign this contract, then you are accepting these terms and you are responsible for paying off the loan
Loan companies and banks will take a look at certain factors before extending you a loan, such as your credit score. This means they’ll ask themselves: “Can this person pay back the loan as the agreement outlines?”
Before showing you the credit or loan agreement, companies will usually show you a quote. A quote outlines the same terms as the credit and loan agreements and shows you information with much more detail.
4. Credit Score
Your credit score helps to tell a loan company whether you are high or low risk and all accounts you currently have and have had in the past Things like early or late repayments will also appear on your credit report and will affect your credit score. Financial institutions use this information to determine if you are high or low risk.
5. Credit Check
When someone looks up information from a credit bureau in regards to a credit score this is called a credit check. It outlines your credit score, and provides information about your financial standing. Companies other than loan providers (such as estate agents) also make use of credit checks, but have to ask your permission to do it.
To pay in instalments refers to the way in which one pays back a loan. There are two ways in which one can do this: you can either make single payments over multiple months like when splitting the payments up into 12 or 24 instalments, or you can pay it all off at once like when taking out an instant loan.
7. Initiation Fee
An initiation fee is a lump sum that you have to pay in order to have the loan process take place. In most cases, the initiation fee goes towards paying for the credit check and loan approval process. It's very important to make sure that you understand all the fees and interest rate charged before accepting the loan.
8. Principal Debt
The principal amount is the loan amount you originally requested. Let's say you apply for and receive a loan of R2, 000. Your initial debt is R2, 000. Anything you pay over this amount will go towards paying off interest and other fees the loan provider might charge.
Contract and legal jargon can be difficult to understand Long words and confusing terms tend to cloud up even the simplest concepts so if you don't know what an ‘Eligible Obligation’ is, we totally understand. Know that it is in your right to ask the credit provider to explain any terms and fees you do now understand.