Glossary of Loan & Financial Terms

Amortization is the systematic repayment of a loan over time through fixed periodic payments. Each payment is split between interest and principal. In the ea...

A bank guarantee (BG) is a promise from a bank that the liabilities of a debtor will be met. If the debtor fails to settle a debt or fulfill contractual obli...

A business loan provides financial support for various operational and growth needs — working capital, expansion, equipment purchase, inventory procurement, ...

Cash credit is a short-term revolving facility where a bank provides a credit limit against pledged current assets — inventory, raw materials, or receivables...

A co-applicant joins the primary borrower in the loan application. Combined income increases loan eligibility. Most lenders require property co-owners to be ...

Collateral is any asset of value — real estate, securities, gold, or fixed deposits — pledged to the lender to secure a loan. It acts as a guarantee, reducin...

A credit score, commonly referred to as CIBIL score in India (after TransUnion CIBIL, the leading credit bureau), is a numerical summary of a borrower’...

Debt consolidation involves taking a single loan (usually secured, like LAP) to pay off multiple high-interest debts — credit card balances, personal loans, ...

DTI measures total monthly debt payments (all EMIs, credit card minimums, other fixed obligations) as a percentage of gross monthly income. DTI = (Total Mont...

Disbursement is the process by which the approved loan amount is released to the borrower’s account or directly to a third party (such as a property se...

A down payment is the portion of the purchase price paid from personal funds, with the rest financed by loan. Per RBI guidelines, minimum is 10% for loans up...

An Equated Monthly Instalment (EMI) is the fixed amount a borrower pays to the lender every month until the full loan amount, including interest, is repaid. ...

A fixed interest rate does not change for the agreed period, regardless of market rate movements. In India, truly fixed-rate loans for the entire tenure are ...

A floating rate changes with the benchmark lending rate. Since Oct 2019, all new bank floating-rate loans must link to an external benchmark most use the rep...

FOIR measures how much of a borrower’s monthly income is already committed to fixed obligations — existing EMIs, credit card minimum payments, rent, in...

Foreclosure means paying off the entire remaining loan balance in one payment before the tenure ends. Unlike partial prepayment (which reduces outstanding pr...

A home loan (housing loan/mortgage loan) is a secured facility where a bank, HFC, or NBFC provides funds for purchasing, constructing, renovating, or extendi...

A balance transfer allows borrowers to move their outstanding home loan to a new lender with better terms — primarily lower interest rates. The new lender pa...

Income Tax Returns are the annual filings with the Income Tax Department declaring income from all sources and tax paid. For loan applications, lenders typic...

KYC is a regulatory requirement for all Indian financial institutions to verify the identity, address, and financial profile of customers before onboarding. ...

A line of credit is a revolving facility where the lender sanctions a credit limit, and the borrower draws funds as needed up to that limit. Unlike a term lo...

Loan Against Property (LAP) allows borrowers to unlock the value in their existing property without selling it. The property — residential or commercial — is...

Loan Against Securities (LAS) allows investors to access liquidity without selling their investments. Securities are pledged (not sold) to the lender as coll...

Loan eligibility is the assessment process lenders use to determine the maximum amount they can safely lend to an applicant. Key factors include: monthly inc...

Loan restructuring allows lenders to modify existing loan terms when borrowers face temporary financial hardship. Options include: extending tenure (lower EM...

A loan sanction letter confirms the lender has approved the application and specifies key terms: sanctioned amount, interest rate, tenure, EMI, processing fe...

Loan tenure refers to the agreed-upon period within which the borrower must fully repay the loan, including principal and interest. Tenures vary widely depen...

LTV is calculated as (Loan Amount / Property Value) x 100. RBI sets maximum limits: 90% for loans up to ₹30 lakhs, 80% for ₹30-75 lakhs, 75% above ₹75 lakhs....

A margin call occurs in Loan Against Securities when the market value of pledged securities declines, causing the LTV ratio to exceed the lender’s comf...

MCLR was introduced by RBI in April 2016 to ensure better transmission of monetary policy changes to borrowers. It is calculated based on: marginal cost of f...

A mortgage creates a legal charge on immovable property in favor of the lender. In India, mortgages are governed by the Transfer of Property Act, 1882. The m...

MSME loans are tailored for Micro, Small, and Medium Enterprises classified by the Government of India. Government schemes include MUDRA (loans up to ₹10 lak...

NBFCs are companies registered under the Companies Act that engage in financial activities — loans, investments, asset financing, insurance — but are not ban...

A Non-Performing Asset (NPA) is a loan on which the borrower has stopped making principal or interest payments for more than 90 days. Banks are required by R...

An overdraft facility allows account holders to withdraw funds exceeding their balance up to a sanctioned limit. It can be secured (backed by property, FD, o...

A personal loan is an unsecured credit facility available to salaried and self-employed individuals for any legitimate personal purpose. No collateral is req...

A pledge involves the transfer of possession of movable assets to the lender as security. Unlike a mortgage (which applies to immovable property), a pledge a...

Pre-EMI interest is charged during the period before full loan disbursement and regular EMIs begin. Common in under-construction property loans where funds a...

Prepayment means paying off part or all of an outstanding loan before the scheduled date. Partial prepayment reduces outstanding principal and can either low...

The principal amount is the base sum borrowed from the lender at disbursement. All interest calculations are based on this principal. As the borrower makes E...

A processing fee is a non-refundable charge covering administrative costs of evaluating the application, verifying documents, and assessing eligibility. In I...

Project funding (project finance) is a specialized form of lending where the loan is structured around a specific project’s cash flows and assets rathe...

A certified valuer (appointed by the lender) assesses property value considering location, area, age, condition, construction quality, amenities, and compara...

The Reserve Bank of India is India’s central bank, established in 1935. It regulates all banks, NBFCs, and payment systems; sets monetary policy (repo ...

The repo rate (Repurchase Rate) is the RBI’s primary monetary policy tool. When the RBI lends money to banks overnight against government securities, i...

SARFAESI Act (2002) empowers banks and financial institutions to recover non-performing assets (NPAs) by seizing and selling the collateral without court int...

A secured loan requires the borrower to pledge an asset as security. Common examples include home loans, LAP, and LAS. Because the lender has recourse to col...

Stamp duty is a mandatory state government tax on property transactions. In India, rates vary from 3-8% of market or transaction value (whichever is higher)....

A top-up loan is additional borrowing on an existing home loan. After paying EMIs for a period, the outstanding balance is lower than the original sanction a...

An unsecured loan requires no asset as security. Approval is based on creditworthiness, income, repayment history, and financial profile. Personal loans and ...

Working capital loans are short-term financing to cover daily operations — payroll, rent, inventory, supplier payments, and utilities. Unlike long-term loans...