Amount of money or financial assets that a person, company or institution owns and is available for investment, spending or to cover expenses. It can include money in a bank account, investments in shares, property, vehicles, among others. Capital is crucial for financing business operations, investments, as well as personal projects. In relation to mortgage loans, capital can be the amount the borrower invests in buying a house as a down payment, or the amount of the outstanding loan that has not yet been paid off. Knowledge of the available capital is key to determining eligibility for a loan and repayment capacity.
The process by which interest earned or accumulated on an investment or loan is added to the principal amount (the original amount) and, from that moment on, earns interest on interest. This results in the total amount growing exponentially over time. Capitalisation is an important feature of many financial products, such as savings accounts, certificates of deposit and loans.
Period defined in a loan during which the borrower makes payments that cover only the interest, without reducing the principal amount of the loan. During this period, the borrower is not amortising the loan, i.e. they are not paying the original amount of the loan, but only the associated interest. This results in lower monthly instalments during the capital grace period, which can be useful for people or companies who want temporary relief from their financial duties. However, it's important to note that capital grace generally lengthens the term of the loan and can increase its total cost, since interest continues to accrue without reducing the principal balance.
Fund lent to an individual by a financial institution or creditor, with the requirement to repay the amount lent with interest within a specified period of time. This financial transaction gives borrowers access to additional funds that can be used for various purposes, such as the purchase of goods, payment of expenses, investments or other financial needs. Credit can be granted in the form of loans, credit lines, credit cards or other financial products.
Loans granted to individuals to finance personal expenses such as the purchase of consumer goods, travel, education or other non-housing related needs. This type of credit can be in the form of personal loans, credit cards, lines of credit or other financial products that allow consumers to access additional funds. Consumer credit is often used to acquire goods or services immediately, with the promise of repayment over time, usually with interest payments.
Authorised and regulated financial entity that offers a variety of financial services, including loans, credit, deposits, banking services and other related products. It can include commercial banks, credit unions, finance companies, investment banks and other financial entities that operate under regulatory supervision. Each type of credit institution may have a specific set of products and services, as well as regulations governing their activities.
Interest calculated not only on the principal amount, but also on previously accrued interest. This means that the interest earned or owed increases over time as it is reinvested or accumulated. Compound interest is most common in mortgage loans, savings, investments and interest accounts.
Probability of a borrower failing to fulfil their payment duties on a loan or debt, resulting in financial losses for the lender or creditor. Lenders assess credit risk when granting loans and this assessment is based on the borrower's credit profile, which includes information such as payment history, credit score, income, employment and other financial factors. The higher the perceived credit risk of a borrower, the higher the interest rate that can be applied or the likelihood that the loan will be refused.
Financial process by which a borrower transfers their existing loan from one financial institution to another. This involves changing the lender responsible for the loan, but not necessarily changing the terms of the loan itself. There are several reasons why a borrower may choose to make a credit transfer, including obtaining better conditions, consolidating several debts into a single loan and switching to a financial institution that offers a better service.