Prospifi Loan Glossary: Key Terms Explained

Core loan terms describe what you borrow, for how long and on what security. Nine words cover the structure of nearly every personal loan offer, including any you find through a Prospifi search.

Personal loan

A personal loan is a fixed sum borrowed from a lender and repaid in equal installments over a set term. Most are unsecured and carry a fixed rate. Borrowers use them for one-time costs such as repairs, medical bills or combining card balances.

Principal

Principal is the amount you borrow, before interest. Each payment covers the interest due and reduces the principal. As the principal falls, less interest accrues, which is why extra payments made early save the most.

Term

The term is the length of time you have to repay a personal loan, usually stated in months. A longer term lowers each payment and raises the total interest. Small personal loans commonly run from six months to three or four years.

Installment loan

An installment loan is repaid through a fixed number of scheduled payments, each for the same amount. Personal loans, auto loans and mortgages are installment loans. Credit cards are different because the balance and payment change from month to month.

Unsecured loan

An unsecured loan is not backed by collateral. The lender relies on your income and credit history instead of an asset. Most personal loans between $500 and $5,000 are unsecured, so no car title or savings account is pledged.

Secured loan

A secured loan is backed by an asset the lender can claim if you do not repay, such as a vehicle or a savings account. Secured loans may carry lower rates, but they put the pledged property at risk.

Collateral

Collateral is property pledged to secure a loan. If the borrower defaults, the lender may take and sell it. An unsecured personal loan requires no collateral, which is one reason its rate is usually higher than a secured loan's.

Co-signer

A co-signer agrees to repay a personal loan or other debt if the main borrower does not. The co-signer's credit and income can help an applicant qualify or earn a lower rate. Missed payments damage both people's credit records.

Co-borrower

A co-borrower applies jointly, shares the loan proceeds and is equally responsible for repayment from the first day. Lenders consider both incomes and both credit histories when they review a joint application.

Rates and cost terms tell you what a personal loan will cost beyond the amount borrowed. The APR is the most useful of them, because it combines interest and mandatory fees in one yearly figure.

Annual percentage rate (APR)

The APR is the yearly cost of a loan expressed as a percentage, including interest and mandatory fees such as an origination fee. Lenders must disclose it. Comparing APRs is the most reliable way to compare two offers for the same amount and term.

Interest rate

The interest rate is the yearly percentage charged on the principal alone. It excludes fees. When a personal loan has no fees, the interest rate equals the APR; when it has an origination fee, the APR is higher.

Fixed rate

A fixed rate stays the same for the whole term, so every payment is identical. Most personal loans use a fixed rate, which makes the final payment date and the total cost known on the day you sign.

Variable rate

A variable rate moves with a benchmark rate and can raise or lower your payment during the term. Variable rates are common on credit cards and lines of credit and uncommon on small personal loans.

Origination fee

An origination fee is a one-time charge for processing a personal loan, often 1% to 10% of the amount. Lenders usually deduct it from the proceeds, so you receive less than you borrow while repaying the full amount.

Finance charge

The finance charge is the total dollar cost of credit over the life of the loan, including interest and certain fees. It appears in the lender's disclosure alongside the APR and the amount financed.

Total of payments

The total of payments is the sum of every scheduled payment, which equals the amount financed plus the finance charge. Comparing this figure across offers shows which loan costs less overall.

Simple interest

Simple interest is calculated on the outstanding principal only, not on previously accrued interest. Most personal loans use it. Paying early or paying extra lowers the principal and therefore the interest charged afterward.

Prepayment penalty

A prepayment penalty is a fee for paying a loan off ahead of schedule. Most personal loan lenders do not charge one. The loan agreement states whether a penalty applies and how it is calculated.

Late fee

A late fee is charged when a payment arrives after the due date or after a grace period. The amount is set in the loan agreement, often as a flat sum or a percentage of the payment.

Credit terms describe how lenders measure your record of handling debt. Understanding them helps you predict the rate you may be offered, which no Prospifi search can show in advance, and improve it over time.

Credit score

A credit score is a three-digit number, commonly from 300 to 850, that summarizes the risk shown in your credit report. Higher scores indicate lower risk. Lenders use scores, along with income, to set personal loan rates.

Credit report

A credit report is a record of your credit accounts, balances, payment history and inquiries, compiled by a credit bureau. You are entitled to free copies, and correcting errors on them can improve a score.

Credit bureau

A credit bureau collects credit information and sells reports to lenders. The three national bureaus are Equifax, Experian and TransUnion. Some lenders also use specialty bureaus that track bank account and short-term loan records.

Hard inquiry

A hard inquiry occurs when a lender checks your credit to make a lending decision. It is recorded on your report and may lower a score by a few points for a limited period.

Soft inquiry

A soft inquiry is a credit check that does not affect your score. Lenders use it to show preliminary rates, and it also occurs when you check your own credit.

Credit utilization

Credit utilization is the share of your available revolving credit that you are using. Balances above roughly 30% of a card's limit tend to lower a score, and paying them down can raise it quickly.

Payment history

Payment history is the record of whether you have paid past accounts on time. It carries more weight in most scoring models than any other factor, and a single late payment can remain visible for years.

Thin file

A thin file is a credit report with few accounts or a short history. A thin file is not bad credit, though it gives lenders less to judge, so some rely on income and banking data instead.

Prequalification

Prequalification is an early estimate of the personal loan terms a lender might offer, usually based on a soft inquiry. It is not an approval. Final terms follow a full review and, typically, a hard inquiry.

Income and affordability terms measure whether a payment fits your finances. Lenders apply them to every request, whether or not it began with a Prospifi search, and you can calculate each one yourself before applying.

Debt-to-income ratio (DTI)

Debt-to-income ratio is your total monthly debt payments divided by your gross monthly income. Many lenders prefer a DTI under about 40% once the new payment is included. Lowering the amount requested reduces it.

Gross income

Gross income is what you earn before taxes and deductions. Lenders usually use gross monthly income when they calculate a debt-to-income ratio, which is why the figure on an application may be higher than your paycheck.

Net income

Net income, or take-home pay, is what reaches your bank account after taxes and deductions. Use it, not gross income, when you test whether monthly payments fit your own budget.

Proof of income

Proof of income is documentation that shows what you earn, such as pay stubs, benefit letters, tax forms or bank statements. Lenders use it to confirm that the figures on an application are accurate.

Process terms describe the steps between a request and a funded loan. Knowing them makes it clear who does what, especially when a Prospifi search leads to a connector service instead of a lender.

Lender

A lender is the company that approves, funds and services a personal loan. The lender sets the rate and terms, issues the disclosures and collects the payments. Your legal agreement is with the lender.

Loan-request service

A loan-request service, sometimes called a connector, passes a borrower's request to lenders that may make an offer. It does not lend or decide. Our site is a service of this kind.

Underwriting

Underwriting is the lender's review of a personal loan application. It covers identity, income, existing debt and credit history, and it ends in an approval, a counteroffer or a decline.

Counteroffer

A counteroffer is an approval on different terms than you requested, such as a smaller amount or a different term. You may accept it, decline it or seek another lender.

Adverse action notice

An adverse action notice is the written explanation a lender must provide when it declines an application or offers less favorable terms based on a credit report. It names the main reasons and the bureau used.

Loan agreement

The loan agreement is the contract between borrower and lender. It states the amount, APR, payment schedule, fees and what happens after a missed payment. Read it in full before signing.

Truth in Lending disclosure

The Truth in Lending disclosure is a standardized summary that lenders must provide before you sign. It lists the APR, finance charge, amount financed and total of payments in a consistent format.

ACH transfer

An ACH transfer is an electronic movement of money between bank accounts. Lenders typically use ACH to deposit loan funds and to collect payments, which is why a checking account is required.

Funding

Funding is the moment a lender sends the personal loan proceeds to your bank account. Many lenders fund on the next business day after you sign, and timing depends on bank cutoff times.

Repayment terms cover what happens between the first payment and the last, including what follows a missed payment. Most personal loan problems are easier to solve when you know these words in advance.

Amortization

Amortization is the process of repaying a personal loan or similar debt through equal payments that each cover interest and principal. Early payments contain more interest; later ones contain more principal. An amortization schedule lists every payment.

Autopay

Autopay is an arrangement in which the lender withdraws each payment automatically on the due date. It prevents missed payments, and some lenders reduce the rate slightly for borrowers who enroll.

Grace period

A grace period is a number of days after the due date during which a payment can arrive without a late fee. Not every lender offers one, and the agreement states its length.

Delinquency

Delinquency means a payment is past due. Lenders usually report an account as delinquent to the credit bureaus once it is 30 days late, which can lower a credit score considerably.

Default

Default is the failure to repay a personal loan or other debt as agreed, typically after several missed payments. The lender may demand the full balance, send the account to collections or take legal action, and the record harms credit for years.

Collections

Collections is the process of recovering an unpaid debt, handled by the lender or a third-party agency. Federal law limits how collectors may contact you and gives you the right to dispute a debt.

Hardship plan

A hardship plan is a temporary arrangement, such as a reduced or deferred payment, that a lender may offer to a borrower facing financial difficulty. Asking before a payment is missed gives the best chance of receiving one.

Payoff amount

The payoff amount is the total needed to close a loan on a given day, including principal and interest accrued to that date. It often differs from the balance shown on a statement.

Refinancing

Refinancing replaces an existing personal loan or other debt with a new one, ideally at a lower APR or with a more suitable term. The new loan pays off the old, and any fees should be weighed against the savings.

Debt consolidation

Debt consolidation combines several debts into one new loan with a single payment. It saves money when the new APR is lower than the average rate on the debts replaced. See our debt consolidation loans page.

Search phrases are the words people type when looking for a loan, and several of them are not industry terms at all. The entries below explain what Prospifi and five other common phrases usually mean.

Prospifi

Prospifi is a name people type into search engines when looking for personal loan options. Our website is independent and is not affiliated with Prospifi or prospifi.com; we use the word only to describe that search.

"Any credit loans"

"Any credit loans" is a search phrase used by people worried about being declined. No lender approves every applicant. Some lenders consider a wide range of credit profiles, usually pricing weaker credit at higher rates.

"Loans for loans"

"Loans for loans" describes borrowing to repay existing debt, which the industry calls debt consolidation or refinancing. The move helps only when the new loan costs less than the debts it replaces.

"Loan credit loans"

A loose search phrase that combines two ideas: loans and credit. People using it generally want to know how credit history affects approval and price, which our eligibility guide explains.

"Asap finance"

"Asap finance" is shorthand for funding needed urgently. Many lenders decide within minutes and fund on the next business day, though speed is never certain. Our emergency loans page covers urgent requests.

"Cash loan application"

A search phrase for applying for a small loan that is paid out quickly. With online lenders the money arrives by bank deposit, not as physical cash, after the lender approves the request.

• FAQ — short answers to common questions
• Typical rates — APR ranges by credit profile
• Eligibility — requirements and documents
• Personal loan calculator — see amortization in practice
• Blog — longer guides on borrowing decisions