Loan terminology and lending 101

March 15, 2023

How well do you understand your options for borrowing money? Review this loan terminology glossary to study up on loans, lending, lines of credit and more.

Loans can provide an opportunity to buy a new vehicle or home, or provide short-term cash in an emergency. Understanding how loans and credit lines work are critical to financial health, so brushing up on the basics can help you be a more responsible borrower.

 

Loan

A loan is a business contract between borrower and a lender. Those two parties are often a bank customer and a bank, respectively. A loan contract indicates that you get a lump sum of money now, with the expectation that you’ll pay it back to the bank later, usually with interest included. A term loan means a borrower will lend a certain sum of money in exchange for certain loan terms. These are commonly used by small businesses or individuals purchasing a large asset, like a home or a building. Term loans can offer lower interest rates and more flexibility.

 

Interest 

Interest is the amount it costs for the bank to lend you money. The loan typically includes a percentage fee, or interest, as a cost of borrowing. That interest rate may be fixed throughout the term of your loan, or it may change. Variable interest rates can potentially change, according to the terms of your contract.

 

Variable interest rate

Variable interest rate is an interest rate that might change, according to the terms of your contract. An example of a common variable interest rate is a credit card with an introductory 0% annual percentage rate (APR) that then goes up to 15% once you’ve had the card for a year. Other loan types like student loans and adjustable-rate mortgages can include a variable interest rate as well.

 

Fixed interest rate

Fixed interest rate is an interest rate that stays the same throughout the loan. Fixed interest rates don’t change, even when there’s inflation or a change in your payback habits. Credit cards don’t usually have fixed interest rates, but things like car payments and mortgages often do.

 

Open-end credit

Open-end credit is a type of loan where you can make repeated withdrawals and payments with no final amount you’ll pay back. Credit cards and home equity loans are open-end lines of credit.

 

Closed-end credit

Closed-end credit is a type of loan in which all the funds are lent at once, and all the funds must be paid back. When the credit extended to you doesn’t have a set term, or end date, it is considered open-end credit. Credit cards are an example of open-end credit. Closed-end credit, on the other hand, has a set term. For instance, many mortgages are repaid over 30 or 15 years, making them a good example of closed-end credit.

 

Secured credit card

A secured credit card is a credit card that requires a cash deposit to open an account. Secured credit cards are a common tool to help build credit history. With this type of credit card the bank can use the cash deposit as collateral if you fail to make payments.

 

Learn more about credit and lending.

Related content

Myth vs. truth: What affects your credit score?

6 questions to ask before buying a new home

8 steps to take before you buy a home

What is refinancing a mortgage?

Are professional movers worth the cost?

What to know when buying a home with your significant other

Mortgage basics: 3 key steps in the homebuying process

Mortgage basics: Buying or renting – What’s right for you?

Mortgage basics: Prequalification or pre-approval – What do I need?

How you can take advantage of low mortgage rates

Mortgage basics: Finding the right home loan for you

Home buying myths: Realities of owning a home

Mortgage basics: What is refinancing, and is it right for you?

What’s your financial IQ? Game-night edition

A checklist for starting a mobility program review

Tips for realtors to help clients get their homeownership goals back on track

5 reasons why couples may have separate bank accounts

Common unexpected expenses and three ways to pay for them

Myths vs. facts about savings account interest rates

How do interest rates work?

7 steps to keep your personal and business finances separate

At your service: outsourcing loan agency work

How I did it: Bought a home without a 20 percent down payment

What you need to know before buying a new or used car

What is a home equity line of credit (HELOC) and what can it be used for?

3 ways to secure purchasing power

Housing market trends and relocation impact

An investor’s guide to marketplace lending

What is a CLO?

Beyond Mars, AeroVironment’s earthly expansion fueled by U.S. Bank

ABL mythbusters: The truth about asset-based lending

Collateral options for ABL: What’s eligible, what’s not?

Can ABL options fuel your business — and keep it running?

Maximizing your infrastructure finance project with a full suite trustee and agent

Authenticating cardholder data reduce e-commerce fraud

Avoiding the pitfalls of warehouse lending

Evaluating interest rate risk creating risk management strategy

Webinar: Approaching international payment strategies in today’s unpredictable markets.

Managing the rising costs of payment acceptance with service fees

Increase working capital with Commercial Card Optimization

The surprising truth about corporate cards

Tech lifecycle refresh: A tale of two philosophies

Changes in credit reporting and what it means for homebuyers

What’s the difference between Fannie Mae and Freddie Mac?

Why other lenders may be reaching out to your employees

High-cost housing and down payment options in relocation

4 benefits of independent loan agents

Middle-market direct lending: Obstacles and opportunities

Crypto + Relo: Mobility industry impacts

For today's relocating home buyers, time and money are everything

Streamline operations with all-in-one small business financial support

How to fund your business without using 401(k) savings

Costs to consider when starting a business

Why credit cards should be the first choice for business payments

Business credit card 101

What kind of credit card does my small business need?

Do I need a credit card for my small business?

How jumbo loans can help home buyers and your builder business

When to consider switching banks for your business

5 tips to help you land a small business loan

How to accept credit cards online

5 ways a business credit card program can grow your business

Good debt vs. bad debt: Know the difference

Student checklist: Preparing for college

The A to Z’s of college loan terms

Co-signing 101: Applying for a loan with co-borrower

Practical money skills and financial tips for college students

How to build credit as a student

How I did it: Paid off student loans

Pros and cons of a personal line credit

3 tips for saving money when moving to a new home

Personal loans first-timer's guide: 7 questions to ask

How to choose the right rewards credit card for you

Things to know about the Servicemembers Civil Relief Act

5 tips to use your credit card wisely and steer clear of debt

Your financial aid guide: What are your options?

Is a home equity loan for college the right choice for your student

Parent checklist: Preparing for college

How to apply for federal student aid through the FAFSA

What to consider before taking out a student loan

Are you ready to restart your federal student loan payments?

Everything you need to know about consolidating debts

5 tips to use your credit card wisely and steer clear of debt

5 steps to selecting your first credit card

How to use debt to build wealth

What’s a subordination agreement, and why does it matter?

Understanding the true cost of borrowing: What is amortization, and why does it matter?

Know your debt-to-income ratio

How to use credit cards wisely for a vacation budget

Your quick guide to loans and obtaining credit

Dear Money Mentor: How do I begin paying off credit card debt?

Dear Money Mentor: What is cash-out refinancing and is it right for you?

Overcoming high interest rates: Getting your homeownership goals back on track

For today's homebuyers, time and money are everything

Crypto + Homebuying: Impacts on the real estate market

Should you buy a house that’s still under construction?

How I did it: Bought my dream home using equity

Buying a home Q&A: What made three homeowners fall in love with their new home

Saving for a down payment: Where should I keep my money?

What are conforming loan limits and why are they increasing

The lowdown on 6 myths about buying a home

Money Moments: Tips for selling your home

Money Moments: How to finance a home addition

How I did it: My house remodel

First-time homebuyer’s guide to getting a mortgage

Dear Money Mentor: When should I refinance a mortgage?

What is an escrow account? Do I have one?

Is it the right time to refinance your mortgage?

These small home improvement projects offer big returns on investment

Should you get a home equity loan or a home equity line of credit?

Mortgage basics: What’s the difference between interest rate and annual percentage rate?

Is a home equity line of credit (HELOC) right for you?

How to use your home equity to finance home improvements

How do I prequalify for a mortgage?

Can you take advantage of the dead equity in your home?

4 questions to ask before you buy an investment property

10 uses for a home equity loan

What applying for store credit card on impulse could mean

How to spot a credit repair scam

6 essential credit report terms to know

5 unique ways to take your credit card benefits further

Test your loan savvy

Credit: Do you understand it?

Should you give your child a college credit card?

What types of credit scores qualify for a mortgage?

How to improve your credit score

Take the stress out of buying your teen a car

Questions to ask before buying a car

What you should know about buying a car

How to choose the best car loan for you

Disclosures

Start of disclosure content

Loan approval is subject to credit approval and program guidelines. Not all loan programs are available in all states for all loan amounts. Interest rate and program terms are subject to change without notice. Mortgage, Home Equity and Credit products are offered through U.S. Bank National Association. Deposit products are offered through U.S. Bank National Association. Member FDIC.