Financial Terms Dictionary

Find definitions for some of the financial terms we use throughout the LendingPush website.

A - B - C - D - E - F - G - H - I - J - K - L - M - N - O - P - K - R - S - T - U - V - W - X - Y - Z

----------- A -----------

Accrued interest

Accrued interest is interest that has been accumulated but has not yet been paid out. Example: A savings account with a balance of $1,000 that awards 1% interest per month, but only pays out once per year. After 9 months, you would have $9 in accrued interest, but you would only receive it in 3 months.

Actual cash value (ACV)

When dealing with automobile & home insurance, Actual Cash Value equals the value of the item on the day it was lost/damaged minus the depreciation. Depreciation is calculated by usage of the item, its condition and more. ACV helps determine what the item's actual worth is.

Actuary

An actuary is an expert in mathematics, statistics, data analysis and risk management. They can help predict the potential financial impacts of upcoming events. They help their clients (most notably insurance companies) to make financial decisions with less risk.

Amortization

Amortization in the loan industry means the amount of time the loan will take to be repaid. For instance, a car loan with an amortization period of 5 years, means the loan payments will be calculated so that the entire borrowed amount gets reimbursed within 5 years.

Annual Percentage Rate (APR)

Annual Percentage Rate or APR is a term used by lenders to identify the actual yearly cost of borrowing money. If you take out a loan with a 12% APR, you would pay 1% in interest per month. APR rates do not always include all fees and additional costs.

Assets

Assets are a person's (or company's) belongings that have value. Assets can be physical items like computers, television sets, furniture or they can be non-tangible such as websites, copyrights, patents. Mortgages, cars and other items with debt attached to them fall into the liabilities category.

Audit

An audit is performed by a certified auditor, who's responsibility is to verify the accuracy of financial reports. For instance, the government could have your tax reports audited to ensure that your reported income is correct.

----------- B -----------

Balance Sheet

A balance sheet is a financial report that gives you a complete picture of a company's financial standing. Balance sheets include all incoming cash flow, expenses, charges, equity shareholders, assets, liabilities and more.

Bankruptcy

Bankruptcy is the act of cancelling most or all of your debts if you are unable to make the payments. Bankruptcy has a major negative impact on your credit score and will usually stay on your file for 6 years after being discharged.

Business Model

The term business model is used to identify a business' plan on how to make a profit. A detailed strategy on how they aim to become profitable. Banks will often review the business model before providing companies with funding or credit.

----------- C -----------

Cash Flow

Cash Flow is the incoming and outgoing liquidities of a person or company. This is anything that has direct value such as cash on hand, money in the bank, shares that can be easily sold and other types of readily available funds.

Compound Interest

Compound interest is when a person invests money and the generated interest gets reinvested. This allows your interest earned to also generate more interest over time. This can also be applied to money owed, where your owed interest gets compounded.

Contribution Room

In finance, contribution room is the amount of money that can be invested without having to pay a penalty. This is often a term used with registered savings plans like an RRSP, TFSA or similar. Investing more than the contribution room would incur additional fees.

Credit

Credit is a type of funding where the lender provides the borrower with immediate funds. The borrower agrees to repay those funds over a set period of time with a set interest rate. Examples of credit include credit cards and lines of credit.

Credit Report

A credit report is an official report that lenders review before approving a loan or credit. This detailed report shows a person's credit history, how well they pay their existing loans, whether or not they have derogatory marks on their file and more.

Credit Score

A credit score is a rating assigned to you in direct relation to your credit report. Poor payment history and other bad credit habits will lead to a lower score. Credit scores usually range between 300 to 900. Usually lenders won't provide funds to people with scores below 650.

Creditor

A creditor is a company (or person) who lends you money. This could be a credit card provider, a bank, loan officer or similar. Creditors usually report to the major credit bureaus, so missing payments can result in a negative impact on your credit score.

----------- D -----------

Debt

Debt is money that you owe. This is usually owed to lenders, banks or companies. Debt usually accrues interest and the amount owed grows over time unless it gets paid back.

Debt Consolidation

Debt consolidation involves taking out a single loan from one lender, which is used to repay all of your existing debt. This allows you to pay off all of your creditors and then have only one monthly payment.

Debt Ratio

Lenders will often consider your debt ratio before approving loans like mortgages or car loans. The debt ratio is calculated by dividing all your monthly expenses by all your incoming revenue. Banks usually prefer a debt ratio below 30%.

Deflation

Deflation is when the cost of goods or services drops over a period of time. This allows you to purchase more goods with less money than it used to cost. Also referred to as the rise of purchasing power and is the opposite of inflation.

Direct Lender

A direct lender is a company that provides funding directly. This means they are the people providing you with the funds and you will be repaying this company directly. Direct lenders are the opposite of indirect lenders.

Dividend

Dividends are the distribution of a company's earnings to its shareholders. Most companies choose to pay their dividends quarterly. The dividend amounts are decided by the company's board of directors.

----------- E -----------

Entrepreneur

An entrepreneur is a person who starts a new business, often as a self-employed individual. An entrepreneur assumes all the risks personally, but also gets to enjoy all of the rewards. Entrepreneurs occasionally also work with partners in a partnership.

Exchange Rate

An exchange rate is the difference between currencies. An example of this is what the US dollar is worth versus the Canadian dollar. Exchange rates are constantly changing during business hours depending on currency supply & demand.

Expected Return

The expected return is what you anticipate to earn from your investments. This could be calculated by looking at average interest rates, dividends and recurring deposits. Expected returns are estimates and can vary significantly from actual returns.

----------- F -----------

Fiduciary

A fiduciary is a person who is responsible for managing another person's or company's finances. The fiduciary's decisions are always in the best interest of the person or company they are representing. Financial advisors, accountants & board members are a few examples.

Financial Institution

A financial institution is a company that provides funding to people or other companies. For example, banks, credit unions and trust companies are all considered financial institutions. They provide loans, credit, instalment plans and more.

Fiscal Year

In business, the fiscal year is the 12-month period when a company calculates it's income in order to prepare their financial statements. The fiscal year can begin any day of the year, but will always remain the same period year after year.

----------- G -----------

Goods & Services Tax (GST)

The goods and services tax is a value-added tax (VAT) which is paid to companies by consumers. It then gets remitted to the government by the seller who provided the goods or services. GST is used in most countries worldwide.

Grace Period

With credit card issuers, the grace period usually refers to a period of time where the card holder does not have to pay any interest fees. Terms & Conditions usually apply, such as having to pay off your balance in full within 30 days.

Gross Income

Gross income is the total amount of income a person (or company) has earned before deductions or taxes. If you earn $100,000 per year before taxes, your gross income is $100,000.

Gross Profit

Gross profit is the profit a company makes after deducting the costs involved in providing the product or service. For instance, if it costs a company $10 to make a product and they sell it for $20, the gross profit is $10 per product sold.

----------- H -----------

Health Savings Account (HSA)

A health savings account is a tax-advantaged savings plan that allows individuals to save for certain medical expenses, such as prescription drugs, medical devices, dental fees and vision fees. Employers often contribute to their employees HSA plans.

Home Equity Loan

A home equity loan is a type of loan that allows homeowners to borrow money against the equity in their homes. The amount they can borrow depends on certain factors including the remaining mortgage balance due and the current home's market value.

----------- I -----------

Indirect Lender

An indirect lender is a company that helps you secure loans through a direct lender, but they do not directly offer you the funding. The indirect lender simply acts as a middleman, connecting you with the proper lender for your needs.

Inflation

Inflation is when the cost of goods or services rise over time in comparison to what they used to cost. When the same amount of currency buys less goods than it used to, this is due to inflation. This is also referred to as the decline of purchasing power and is the opposite of deflation.

Interest Rates

Interest rate can mean the amount you will pay a lender for borrowing money or the amount you will earn from investing your money. Example, a $1,000 loan with a monthly interest rate of 5% would cost you $50 per month. If this was an investment, you would earn $50 per month.

----------- J -----------

Joint Account

A joint account is just like a regular bank account, but is owned by two individuals. This is often used for married couples who handle their finances together. Another purpose for joint accounts is when two self-employed individuals form a partnership.

Joint Credit

Joint credit is a type of funding that is offered to two or more people. This credit is typically easier to secure as it combines their assets, income and credit histories. However, if one of the individuals has poor credit history, it could make funding more difficult.

----------- K -----------

Key Performance Indicators (KPI)

Key performance indicators are a set of measurable goals that allow companies to determine their level of success. KPIs will vary from one company to another but usually they can help determine strategic, marketing, financial and operational achievements.

----------- L -----------

Late Fee

A late fee is an additional charge that lenders add on to your monthly statement if you fail to make your payment within the agreed time frame. All lenders have different regulations on late fees. Any changes made to late fee terms must be notified in advance to consumers in writing.

Layaway Plan

Layaway plans are a type of financing that allow consumers to purchase items over time. In most cases, the price will be split into several payments and the customer will receive their product upon making the final payment. Some layaway plans allow customers to receive their product right away.

Lead Time

Lead time is the estimated amount of time it will take to complete a task. This term is often used in business to identify the amount of time it will take to complete a project. It can also be used in finance, such as the amount of time to receive funds from a lender.

Letter of Credit

A letter of credit is issued by your bank to a seller, ensuring that your payment will be made in time and in full. This is especially important when dealing with international sellers, where banks and regulations can vary. Most banks charge a fee for issuing a letter of credit.

Liabilities

Liabilities are a person's (or company's) debt. This is the opposite of Assets. For instance, credit card debt, mortgage loans, car loans and financed appliances are all examples of a person's liabilities.

Loan-to-Cost (LTC) Ratio

Loan-to-cost ratio is often used in commercial real estate to determine the risks of providing a construction loan. It compares the cost of the loan to the total costs of construction project.

Loan-to-Value (LTV) Ratio

Loan-to-value ratio is often used by banks in order to determine whether they will provide a mortgage loan or not. It compares the amount of money being borrowed to the actual asset's market value.

----------- M -----------

Mortgage Loan

A mortgage loan is provided by a bank or private lender so consumers can purchase homes. The loan uses the house as collateral. In the event of non-payment, the lender can sell the house to repay the mortgage balance due.

Mutual Fund

A mutual fund is a type of investment that involves several investors. Multiple people pool their funds together and have those funds invested by a mutual funds manager. Mutual funds often invest in stocks, bonds & securities.

----------- N -----------

Nest Egg

A nest egg usually refers to having money set aside for savings purposes. In most cases, a nest egg is a lump sum of money that is kept for emergencies or short-term projects. Nest eggs are not usually used for retirements or longer term goals.

Net Worth

Net worth is used to determine the total value of a person or company. This is calculated by looking at the current value of all assets including tangible and non-tangible assets minus any liabilities or debts that the person or company has.

Notary

A notary is a publicly commissioned official who is authorized to perform legal formalities, such as putting together legal contracts and acting as an impartial witness. A notary has the power to make documents legally valid.

Notice to Creditors

A notice to creditors is a public letter alerting potential unknown creditors of the decease of a person. While known creditors must be directly informed of the death, the notice to creditors serves to alert any creditors that are unknown to the executor.

----------- O -----------

Open Credit

Open credit is a type of funding where the amount borrowed can vary over time. The lending periods are also variable. Examples of open credit include credit cards and lines of credit.

Origination Fee

An origination fee is a type of commission to the lender. If you take out a $100,000 loan with a 2% origination fee, you would pay $2,000 as the origination fee. This is a one-time payment which is used to cover the lender's services.

Over-Limit Fee

An over-limit fee is a charge issued by credit card providers when your card's balance goes over the limit. Since the CARD act passed in 2009, over-limit fees cannot be higher than the amount that was overused on your card's balance.

----------- P -----------

Pension Plan

A pension plan is a type of savings account in which funds are accumulated for use during retirement. Some pension plans group the investments of numerous individuals to generate larger returns.

Portfolio

A portfolio in financial terms refers to the grouping of all a person's (or company's) investments. Investment portfolios are often diversified. For instance, a portfolio could contain stocks, mutual funds, bonds and other financial investments.

Pro Rata

Pro rata means the equal distribution or proportionate distribution. For instance, if you start payments for a new service on the 20th of the month and the service bills you every 1st of the month, the pro rata fee for the first month would be for the last 10 days only.

Purchasing Power

Purchasing power refers to a person's ability to buy goods and services. If a person's salary increases, but not as much as inflation, their purchasing power decreases.

----------- Q -----------

Quarter

A fiscal quarter is a 3-month period (4 quarters throughout a year) that help determine financial reporting dates. They are also often used to distribute dividends.

Quote

A quote in financial terms is often a final amount that has been decided. For instance, an insurance company can provide a quote on how much they will reimburse you after a car crash.

----------- R -----------

Rate of Return

The term Rate of Return is used to help determine how profitable an investment has been. It helps determine the net gain or loss of an investment over a period of time.

Real Estate

Real estate is used to define a property or land. For instance, any type of structure or land that can be owned, sold or purchased is considered real estate.

RESP

A Registered Education Savings Plan (RESP) is a registered savings account with the main purpose of investing to cover the beneficiery's post-secondary education.

----------- S -----------

Savings

Savings is a financial term used to define the amount of money a person has set aside as a backup. It is recommended to have at least 3 months worth of living expenses in savings.

Secured Loan

A secured loan is a type of loan where the borrower must provide a type of collateral in case of non-payment. For instance, mortgage loans and car loans are examples of secured loans.

Shares

Shares or stocks are a type of investment that allow you to partially own a company. The amount of shares you own determine how much dividends are distributed to you.

----------- T -----------

Tax

Taxes are government charges that are used to fund services provided to the public. There are several types of taxes such as property taxes, school taxes, consumption taxes & more.

TFSA

A Tax-Free Savings Account (TFSA) is a Canadian saving plan that allows individuals to invest money and not pay any taxes on earnings or withdrawals.

----------- U -----------

Unused Contribution Room

Unused contribution room is used to define the amount of money an individual could have used in a registered savings account such as an RRSP, but ended up not using. For instance, if you had an RRSP contribution limit of $40,000, but only invested $30,000, your unused contribution room would be $10,000.

----------- V -----------

VRSP

Voluntary Retirement Savings Plan (VRSP) is a type of retirement savings account often offered by employers, where investments are optional. The investments are non-taxable for as long as the funds remain in the VRSP account.

----------- W -----------

Whole Life Insurance

Whole life insurance is a type of life insurance plan that is valid for a person's entire life. These are the opposite of Term Life Insurance plans, which only cover a person for a set period of time.

----------- X -----------

X-Mark Signature

An x-mark signature is used as an individual's signature when the person is unable to sign their full name due to disability or other physical impairments. A witness must be present in order to make the x-mark signature legally binding.

----------- Y -----------

Year-Over-Year

Year-Over-Year (YOY) is a term used to determine the differences in profits or losses by comparing one fiscal year to another.

Yeilds

Yields define the amount of earnings generated from an investment over a period of time. Yields can include interest earned or dividends received on an investment.

----------- Z -----------

Zero Balance Account

A zero balance account is a type of bank account that always remains at $0. The exact amount of funds needs are deposited into this account when a payment must be made. These accounts are often used by larger companies to streamline accounting necessities such as payrolls.