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Home Dictionary A Applicable Federal Rate (AFR) If the interest on the loan is below the applicable AFR, this may result in a taxable event for the parties involved. AFRs are used to determine initial issue discount, unspecified interest, gift tax, and the tax consequences of below-market loans. Parties must use the AFR, which is published by the IRS at the time the lender initially grants the loan. Acceleration Clause
September 25, 2022 An acceleration clause or covenant is a contractual provision that allows the lender to require the borrower to repay the entire outstanding loan if certain requirements are not met. Add-On Interest
September 25, 2022 Most loans are simple interest loans where interest is based on the amount due on the remaining principal after each monthly payment. Allowance for Bad Debt
September 25, 2022 A bad debt reserve is a valuation account used to estimate the amount of a firm’s accounts receivable that may eventually become uncollectible. Amortized Loan
September 25, 2022 An amortized loan is a type of loan that requires the borrower to make periodic payments that apply to both principal and interest. Asset-Based Lending
September 25, 2022 Asset-based lending involves lending money using the borrower’s assets as collateral. Balloon Payment
September 25, 2022 Air payment is a type of loan structure where the final installment payment is intentionally larger than previous payments. Bank Confirmation Letter (BCL)
September 25, 2022 A bank confirmation letter (BCL) confirms that the bank has a line of credit with one of its customers. Bridge Loan
September 25, 2022 A bridge loan is a short-term financing used until a person or company receives permanent financing or removes an existing obligation. Bullet Repayment
September 25, 2022 Lump sum loans are typically used to reduce monthly payments to interest only payments over the life of the loan, but eventually a large final principal payment falls due. Cash Advance
September 25, 2022 A cash advance is a type of short-term loan, often issued by a credit card company, that usually comes with high interest and fees. Collateral
September 25, 2022 Collateral is an item of value used to secure a loan. Covenant
September 25, 2022 Covenants are agreements between multiple parties that create a legally binding agreement on how each party should act. Credit Bureau
September 25, 2022 A credit bureau collects and researches individual credit information and sells it to lenders for a fee so they can make loan decisions. Credit Facility
September 25, 2022 A line of credit is an agreement between a lender and a borrower that provides more flexibility than traditional loans. Default Rate
September 25, 2022 The default rate is the percentage of all outstanding loans that the lender has written off after a long period of missed payments. Deferment Period
September 25, 2022 The grace period is an agreed period during which the borrower does not have to pay the lender interest or the principal amount of the loan. Deferred Interest
September 25, 2022 A deferred interest loan postpones interest payments until a certain period of time has elapsed. Delayed Draw Term Loan
September 25, 2022 A term loan with deferred payment is a term of a term loan that specifies when and how much the borrower will receive. Delinquent Account Credit Card
September 25, 2022 For credit cards, overdue accounts are accounts that have not made at least the minimum payment for 30 days or more. Education Loan
September 25, 2022 An education loan is an amount of money borrowed to finance post-secondary education or expenses related to higher education. Evergreen Loan
September 25, 2022 An evergreen loan is a type of interest-bearing loan in which the principal payment is deferred. Exposure at Default (EAD)
September 25, 2022 Exposure to default (EAD) is the projected amount of loss that a bank may incur when a debtor defaults on a loan. Farmers Home Administration (FmHA)
September 25, 2022 The Farmhouse Administration (FmHA) was a government agency created to help provide loans to farmers and rural communities after the Great Depression. Federal Direct Loan Program
September 25, 2022 The Federal Direct Lending Program offers direct subsidized and unsubsidized loans, PLUS loans, and consolidation loans. Finance Charge
September 25, 2022 Financial charges such as interest rate are assessed for using a loan or extending an existing loan.