It’s no secret that words have power, especially when it comes to explaining financial concepts. The more you know, the better you can understand a given situation. Don’t be fooled by tricky financial words. Use this as a useful and accessible guide next time you need to show off some financial knowledge. Here we’ll cover numbers through the letter C.
401(k): A salary-deferral program put in place by your employer into which you can make post-tax or pre-tax contributions from your paycheck. Your employer may have a matching program and a profit-sharing feature.
Accrued Interest: The interest on a loan or bond that has accumulated over time since the principal investment. This occurs when there is a difference in timing and measurement of cash flows. For example, if you receive a loan on August 1 and your lending company’s year ends on December 31, your loan will have four months of accrued interest.
ACH: The ACH, or Automated Clearing House, is a financial transaction network that processes large volumes of credit and debit transactions in batches. These include credit transfers, direct deposit and vendor payments.
APR: APR, or Annual Percentage Rate, is the annual rate charged on a loan or made through investing. It is a single percentage that represents the yearly cost of funds over the full term of a loan, including any additional fees or costs.
APY: Annual Percentage Yield (APY) is a normalized interest rate, compounded during a period of one year. APY allows you to compare different offerings of various compounding schedules to determine your best option.
Asset: An asset is something of economic value, owned by an individual or corporation, with the expectation that it will be beneficial in the future.
Balance Sheet: A balance sheet summarizes a company’s assets, liabilities and shareholders’ equity at a given time. Segmented into these three sections, the balance sheet tells investors what a company owns, owes and what is already invested by shareholders.
Balloon payment: Due at the end of an amortized mortgage or loan, a balloon payment covers the remaining balance.
Basis Point (BSP): A common unit of measure used for calculating changes in interest rates. One basis point equals 1/100th of 1 percent or 0.01 percent, and a 1 percent change equals 100 basis points.
Bankruptcy: A person or business unable to pay outstanding debts. It begins with a filed petition and then all of a debtor’s assets are measured and used to repay a portion of their debt. After successfully declaring and completing the process, the debtor is relieved of previous debt.
Cash Flow: The net amount of money moving in and out of a business. A company with positive cash flow has increasing liquid assets, while negative cash flow means a company’s liquid assets are decreasing.
Closing Costs (ex: when buying a house): Closing costs are paid during the final real estate transaction when the title of the property is transferred to the buyer.
Co-Signer: A co-signer acts as a guarantor for a signed contract, such as a promissory note or loan document. This may result in financial risk for the co-signer.
Credit: When a borrower receives something of value and agrees to repay the lender in the future, often with interest. When you use a credit card, you receive your purchase items and agree to pay for them via your monthly bill.
Blog Courtesy of Kasasa