Glossary of Personal Financial Terms
Amortization - the repayment time period of a loan or debt / the number of years over which you'll repay the loan or debt.
APR - Annual Percentage Rate - a standard calculation by lenders to show what the interest rate and fees are on a credit product (e.g. loan, credit card, etc.); allows borrowers to compare different loan products.
Arrears - the past due amount owing.
Assets - things you own, even if you still owe money against them.
Bankruptcy - a legal process performed under the Bankruptcy and Insolvency Act. This process relieves consumers of most debts and legal proceedings by creditors will stop. To learn more about bankruptcy alternatives and solutions, click here.
Beacon / FICO Score - this is the credit score that creditors look at when determining your credit worthiness. It ranges from 300 – 900 points and incorporates a variety of factors about your financial behaviour. This helps lenders assess the likelihood that you will pay them back the money you are borrowing from them.
Borrower - a person who incurs a loan or debt.
Budget - a spending plan that accounts for your sources of income, all of your monthly and annual expenses as well as your future needs and possibilities. To learn more about what budgeting is and why it is important, click here.
Co-borrower - the secondary person on a loan / debt – this person is still 100% responsible for repaying the debt at any time.
Collateral - an asset pledged as security on a debt so that if the debt isn’t repaid as agreed, a lender can collect the collateral and sell it to recover any money owing on the debt.
Collection Agency - a company that recovers funds owed on a debt that is past due.
Compound Interest - interest earned on previously accumulated interest as well as the principal.
Co-signer - someone who signs on a loan as a guarantor for the primary borrower to the application.
Consolidated Credit Counseling Services of Canada – a credit counselling service with a Canadian office in Toronto, Ontario. Consolidated Credit Counseling Services of Canada is registered as a charity with the Canadian Revenue Agency.
Consumer Proposal - under the Bankruptcy and Insolvency Act you may make a legal proposal to your creditors to reduce the amount of your debts, extend the time you have to pay off the debt, or provide some combination of both. Find out more about what a consumer proposal and how it works or learn the difference between a consumer proposal and bankruptcy.
Cost of Borrowing - the cost to you to borrow money – includes interest, fees and any other costs associated with the loan.
Credit - the purchase of goods or services in the present with a promise to pay in the future, with money you still plan to earn.
Credit Bureau - a company that is licensed to collect and compile information about your financial behaviour. The information comes from a variety of credit granting sources as well as public records information. In turn, they sell the information, in the form of a credit report, to those authorized to obtain it.
Credit Counselling - professional guidance, assistance, and counselling provided by organizations that help consumers find ways to repay their debt - through careful budgeting and management of money. Credit counselling agencies negotiate with creditors and advocate for interest relief for individual debtors when they believe it is appropriate to do so. Canadians refer to credit counselling and the help that Credit Counsellors provide using many different terms: debt counselling, consumer debt advice, credit card counselling, debt relief, credit card consolidation services, debt management, and even Christian financial counselling.
Credit Counselling Agency - a non-profit organization or a for-profit company that provides credit counselling services to consumers. As part of these services agencies typically offer budgeting advice and debt solutions for credit card debt.
Credit Rating - an evaluation of the likelihood of a borrower to default on a loan. Credit reporting companies provide information about your financial behaviour to lenders to help them decide whether or not to lend you money. The information may include your payment history, a list of current and past credit accounts and their balances, employment and personal information and a history of past credit problems. Learn more about how your credit rating and credit score are calculated.
Credit Report - a summary that provides information to potential lenders of the risk involved in extending credit and the probability of repayment. It is created when you start to apply for credit. Contains personal information, to whom and how often you apply for credit, how regularly you make payments and public records (court judgements). Each lender gives you a rating depending on your “performance” with them. Equifax and TransUnion are the two largest credit reporting agencies in Canada. Learn how to get a free copy of your credit report.
Creditor - someone you owe money to.
Debt Consolidation Loan - a loan obtained for the purpose of paying out other debts. Learn more about what a debt consolidation loan is and how it works.
Debt Consolidation Service - a company or a non-profit organization that helps consumers consolidate their debts when traditional lenders like banks and credit unions are unable to help them. These types of debt consolidation services include credit counselling agencies and bankruptcy trustees. They don't consolidate debt by lending money. Instead they negotiate an alternative payment arrangement with a client's creditors which either lowers the client's interest rate or the amount of debt that they owe. The end result is that the consumer ends up making one consolidated credit payment to the agency each month until the agency's program is complete. These alternative debt consolidation options include Debt Management Programs, Consumer Proposals and sometimes Debt Settlements. Alternative debt consolidation options are available in Ontario B.C., Alberta, Saskatchewan, Manitoba and most other provinces. Speak with a local non-profit credit counselling agency if you are interested in any of these options.
Debt Management Program - a repayment program that helps you get out of debt within a reasonable amount of time. After working out a budget, your creditors would be asked to reduce your monthly payment to match the repayment plan. Creditors will often eliminate or reduce further interest charges. Debt Management Programs are offered by credit counselling agencies and are a significant source of debt relief and help to many Canadians who are experiencing financial difficulties.
Debt Repayment Plan - this is another term used to refer to a Debt Management Program (see the description above). These repayment plans are typically a significant source of debt relief for Canadians with credit card debt.
Debt Settlement - repaying a debt for an amount less than originally owed after a lower repayment amount is negotiated. This typically requires a lump sum of money to pay off or settle the debt once an amount is settled on. Some for-profit companies try to persuade people to enter a debt settlement program with monthly payments. However, a major government study shows that less than 10% of these programs are successful and rarely help people save any money. Many non-profit credit counselling organizations offer reputable debt settlement negotiation services.
Debt Settlement Services - a service offered by an organization that provides debt settlements. Two kinds of debt settlement services are offered: 1) settling your debts with a lump sum of money, or 2) saving up enough money to settle your debts and then attempting to negotiate settlements. Settling debt with a lump sum of money is the most successful way of settling debt and is offered by many credit counselling agencies across Canada. Settling debt by saving up the money first is a method advertised predominately by American for-profit debt settlement companies. A major government study estimated that more than 90% of people who attempt to settle their debts in this manner are unsuccessful and often end up deeper in debt in the process.
Debtor - the person who owes money to someone.
Demand for Payment - a letter from a creditor or collection agency outlining an amount of time in which to pay a debt. The letter may also outline what further action will be taken if payment is not made, e.g. legal action.
Equity - the difference between the price for which a property could be sold and the total debts registered against it.
Foreclosure - the forced sale of property pledged as security for a debt that is in default.
Garnishment - a legal order to withhold money from your pay cheque and remit it to another party, such as a creditor.
Gross Income - how much your pay cheque is before taxes are deducted.
Guarantor - a person who pledges collateral for the contract of another or who guarantees to pay a certain debt if the original borrower defaults.
Interest Rate - the cost of borrowing money, expressed as a percentage, usually over a period of one year.
Joint Debt - a debt that is agreed to by two individuals. Each debtor is fully responsible for 100% of any amount owing.
Judgement - the formal decision made by a court following legal proceedings.
Layaway - a method of paying for merchandise through several installments; the merchandise is set aside for the client until it is paid for in full.
Lease - a contract granting the use of property for a specified length of time in exchange for a specified rental price.
Liabilities - the debts and other financial obligations of a person or company; the opposite of assets.
Lien - a claim against an item by another party which utilizes that item as security for repayment of a loan or other claim. A lien affects the ability to transfer ownership.
Line of Credit - also known as a demand loan or operating line. An agreement by a lender to extend credit up to a certain limit whenever the borrower needs to use it.
Liquid Assets - assets which can be turned into cash easily, e.g. term deposits.
Loan - a sum of money lent at a specified interest rate.
Mortgage Loan – a loan obtained by using real estate as security for the money borrowed. Most Canadians finance the purchase of their home with a mortgage because they don’t have enough money to buy their home outright. Mortgages are provided by banks, credit unions, finance companies and private lenders. Most require a down payment of 5% - 25%, and will often lend the money for 25 – 30 years. The interest rate paid on a mortgage is negotiated for a term that usually ranges from 1 – 10 years. Once the term expires, the interest rate must be re-negotiated. Many lenders offer both fixed and variable interest rate terms.
Net Income - how much your pay cheque is after taxes have been deducted.
Notice of Claim - the notice that you receive if you are being sued in Small Claims Court.
Orderly Payment of Debts - a legal proceeding that will consolidate your debts into one payment which must be paid to the court on a periodic basis. Upon receiving payments the court will disburse payments to creditors on a debtor’s behalf.
Overdraft - the extension of credit by a lending institution which allows withdrawals to exceed deposits in a bank account.
Payday Loan - usually a small, short-term loan that is secured by the borrower's next paycheque. The interest charged on these loans is often substantial. The federal government does not regulate payday loans in Ottawa. This is done by each provincial government.
Payment Hearing - a hearing held before a judge or justice of the peace to assess a debtor's ability to pay and / or to determine how the debtor will pay the judgement against them.
Principal - the amount you’ve borrowed.
Recidivism Rate - the percentage of people who need to repeat a debt repayment program. High recidivism rates are a concern that has been expressed by Gail Vaz-Oxlade through her radio show in Toronto about some credit counselling agencies.
Repossession / Seizure - to take back possession of collateral for failure to pay as agreed. A repossession can be involuntary, or it can be voluntary, meaning that the debtor chooses to return the collateral to the lender.
Right of Offset - a financial institution’s legal right to seize deposited funds to cover a debt that is in default with them.
RRSP - Register Retirement Savings Plan - a savings product that allows individuals to save for their retirement while gaining some income tax benefits.
Security - property which is pledged as collateral for a loan, which can be taken back by the lender if the borrower defaults on the loan.
Settlement - when a creditor agrees to accept a reduced payment on a debt, giving up their right to the remainder that is outstanding.
Statute of Limitations - the maximum period of time after certain events that legal proceedings, based on those events, may be initiated. e.g. the length of time that a creditor has the right to legal action for a debt that has become due.
Synergy Debt Group - a Florida based company owned and operated by the same people who ran the infamous Vortex Debt Group. Synergy Debt Group pays its "Counsellors" a 30% commission to sign people up for its debt management program if they don't qualify for Clear Blue Debt Solutions' debt settlement program. The fees that the Synergy Debt Group charge their clients are among the highest in the credit counselling industry. They also keep 100% of their clients' first debt management program payment - a practice that is unheard of among legitimate organizations in the credit counselling industry.
Term - the number of months for the current period of the loan.
Trustee - a person licensed by the Superintendent of Bankruptcy to administer consumer proposals and bankruptcies.
Vortex Debt Group - a Florida based debt settlement company that began advertising their services in Canada in October 2010. The company has been the subject of a number of investigations, lawsuits and news stories. They have an F rating with the Florida Better Business Bureau (BBB), and the Vancouver Better Business Bureau has warned Canadians about dealing with them. Vortex has subsequently been banned from doing business in the state of Missouri and has been ordered to repay all fees they have collected from clients in that state. A federal government study revealed that companies like Vortex typically have a success rate of less than 10%, don't deliver services to more than 60% of their clients who pay them fees and many of their clients end up in even more debt or bankruptcy after using these services.
Writ of Summons - that notice that you receive if you are being sued in Supreme Court.