Financial Terms & Glossaries

Getting confused with financial terms? Read on to educate yourself with the most common use financial jargon. Use the search form to find the financial terminology you are looking for, or browse through the listing to find the term.

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Account

Account in personal financing is an arrangement with the bank for the debit and credit of funds; also the record or statement of these transactions. Businesses may use an account structure with another party to keep track of goods or services rendered and payments owing.

Accrued Interest

Accrued interest is the accumulated interest you have to pay. It may be fixed or increasing over time.

AKPK

AKPK refers to Agensi Kaunseling and Pengurusan Kredit and is set up by Bank Negara Malaysia (BNM) on April 2006. AKPK provides Financial Education, Financial Counseling and Advise on Financial Management, and Debt Management programs

Amortization

Amortization in personal loan is the fixed repayment time period, or regular installments over time of the loan.

Annual Fees

Annual fees are what banks charge on an annual basis for their maintenance. This is only applicable for credit lines.

Annual Percentage Rate (APR)

Annual percentage rate or APR is the total charge for the loan including fees and interest, expressed as a percentage, which allows you to compare across the market. APR combines the interest paid over the life of the loan and all fees that are paid up front.

Annuity

Annuity is a series of fixed payments of the same amount paid at regular intervals (i.e., every week, month, or pay period) over a specified period of time.

Application Fee

A fee some lenders charge for the service of arranging and processing the application of your loan.

Arbitrage

The simultaneous purchase and sale of a good in order to profit from a difference in price.

Arrears

Arrears is the past due amount you own for the loan.

Assets

An item of a tangible or intangible nature that has value or benefit, such as the capacity to generate revenue or interest. An example of a tangible asset is real estate and an intangible asset is a business brand name.

Automatic Transfer

A system that is set up to automatically transfer money from a one bank account into another account at a certain point in time to coincide with bills or payments.

Balance sheet

A statement of assets, liabilities and equity that shows the financial position of the individual or organisation.

Balance Transfer

A balance transfer loan allows you to transfer all your outstanding debt from credit cards and other personal loans into one account. It usually charges a lower interest rate or has a grace period for 6 to 12 months.

Bankruptcy

Bankruptcy is when someone’s debt problems get so serious that they are unable to pay their existing debts and bills. When this happens, it’s possible to apply to a court to be made bankrupt – which means that any assets you have, such as savings, will be used to pay off your debts. Normally, a person will be discharged from bankruptcy after one year, but it will still have a negative impact on their credit rating and may stop them getting credit or a loan in the future.

Borrower

Borrower refers to the person taking out a loan from a bank, financial institution or moneylender. If you take out a personal loan, you are the borrower.

Borrowing power

Borrowing power is the amount an individual or organisation can borrow, usually calculated using income/revenue, expenses and other debt obligations.

Budget

Budget is a plan, usually limited by time period, that uses estimates of likely revenue and expenditure to allocate funds.

CCRIS

CCRIS stands for Central Credit Reference Information System. is a system created by Bank Negara Malaysia (BNM) which synthesises credit information about a borrower or potential borrowers into standardised credit reports.

Credit Counselling Agency

Credit counselling agency is 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 history

Credit history is the historical record of an individual’s credit transactions such as overdraft, credit cards, loans and their payments.

Credit rating

Credit rating, also known as credit scoring, it is the process of lenders assessing whether an application for a loan should be approved or not. Lenders usually go through the details provided in the application and consult a credit reference agency. Hence the maintenance of a good credit score is a must.

Credit Reference Agency

Credit reference agency is the organizations that collect and store data and records of an individual pertaining to credit records, payments and whether they were made on time or not, applications, queries etc. Financial institutions refer to the data collected by Credit reference agencies while assessing loan application.

Credit Report

Credit report is 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.

Credit score

Credit score is what determines if a person is credit worth or not. Since most loans are unsecured, credit scores are very important to maintain because it gives faith to the lender that the borrower can and will repay the loan and the chances of a loan application being accepted is higher

Creditor

Creditor is someone you owe money to.

CTOS

CTOS stands for CTOS Data System Sdn. Bhd., a Malaysian company categorized as a Credit Agency. CTOS provides information system widely used by the majority of the country’s Financial Institutions, Commercial Companies & Businesses, Legal Firms and other institutions.

CTOS Score

CTOS Score is a three-digit number ranging from 300 (very bad) to 850 (very good). Prior to credit scores, financial institutions checked an applicant’s credit report to see their current credit accounts and their payment habits to determine how ‘risky’ the applicant is.

Debit Card

Debit card is a plastic card similar to a credit card that allows money to be withdrawn or payments made directly from the holder’s bank account.

Debits

Debits is charges to or withdrawals from an account. In a bank account register, debits are subtracted from the balance.

Debt Consolidation

Debt consolidation is a scenario when a borrower takes out a personal loan and uses the amount to pay off other debts such as outstanding credit card debts. Debt consolidation, under the right circumstances, is an effective method to reduce the overall interest charged on other outstanding loans and makes it more convenient by having only one monthly payment to make instead of multiple payments. Debt consolidation should be taken up only after careful consideration.

Debt Consolidation Service

Debt consolidation service is 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 payment to the agency each month until the agency’s program is complete.

Debtor

Debtor is the person who owes money to someone.

Default

Default is a situation when a borrower is unable to make the monthly payments and pay back the loans, the borrower is said to have defaulted on the loans. In the event of a default, the lender can repossess any collateral put against the loan or take legal action against the borrower.

Down Payment

Down payment is a sum of money put toward the purchase price to reduce the amount of money borrowed.

Early Redemption Charge

Early redemption charge is a charge impose by bank or financial institution if pay off your debts before the loan tenor ends. See also Early Settlement Fee.

Early Settlement Fee

Early settlement fee is a charge impose by bank or financial institution if pay off your debts before the loan tenor ends. See also Early Redemption Charge.

Effective Interest Rate

Effective interest rate (sometimes called EIR) is what you should look out for when comparing loans. This is because the EIR takes into consideration the compounding interest, processing and handling fees, which comes up to what you actually pay on your loan.

Encumbered Asset

Encumbered asset is an item of value used as collateral or security for a loan, which has a registered interest against it, for example a property for which you have a mortgage is an encumbered asset. An unencumbered asset is one without any debt or interest registered against it, such as property for which you have paid off the mortgage.

Extra Repayments

Some loans (usually only variable rate loans) allow you to make extra payments above your scheduled monthly repayments, which offers the possibility of paying off the loan sooner and lowering your total cost paid. You could pay less in interest over the life of your loan if you make extra repayments; however, an early repayment fee may apply.

Finance

Finance or funds, usually borrowed as a loan, used to purchase something.

Fixed Interest Rate

Fixed interest rate is a type of interest levied against a borrowed amount that does not change throughout the duration or tenure of the loan. Majority personal loan interest rates offered in Malaysia are fixed which means there is a predefined amount of interest added into the monthly payment which will not fluctuate. See also Flat Interest Rate

Flat Interest Rate

Flat interest rate is a type of interest levied against a borrowed amount that does not change throughout the duration or tenure of the loan. Majority personal loan interest rates offered in Malaysia are fixed which means there is a predefined amount of interest added into the monthly payment which will not fluctuate. See also Fixed Interest Rate

Forbearance

Forbearance is the temporary suspension or reduction of monthly loan payments, usually up to one year.

Grace Period

Grace period also known as an interest-free period, this is an allocated time period where you pay 0% on your interest. Balance transfer loans are known for their grace periods, which can go up to 12 months.

Gross Income

Gross income is the total amount earned before any adjustments are subtracted.

Gross Pay

Gross pay is the amount people earn per pay period before any deductions or taxes are paid.

Guarantor

Guarantor is a person who pledges collateral for the contract of another or who guarantees to pay a certain debt if the original borrower defaults.

Interest In Advance

Interest in advance is when interest payments are charged at the beginning of a period, rather than the end. Usually only available with fixed interest loans.

Interest In Arrears

Interest in arrears is when interest payments are charged at the end of a period.

Late Payment Fees

Late payment fees is a charge impose by lender (bank or financial instituion) when you miss a payment date.

Late Penalty Fee

Late penalty fee is a fee or charge is a penalty for not paying the monthly instalments on or before the due date.

Lease

Lease is a contract granting the use of property for a specified length of time in exchange for a specified rental price.

Lender

A lender is the person, private or public financial institute that agrees to give the borrower the requested amount with the understanding that the borrower is legally bound to return the principal amount along with additional interest.

Liabilities

Liabilities the debts and other financial obligations of a person or company; the opposite of assets.

Lien

Lien is 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

A line of credit is a loan that allows the borrower to withdraw money from an account up to a specified limit.

Loan Term

Loan term is the period of time specified by the lender for the borrower to repay the amount owing to the lender, usually in set instalments including interest.

Maximum Loan Amount

Maximum loan amount is the maximum amount that can be borrowed under the loan agreement.

Minimum Loan Amount

Minimum loan amount is the minimum amount that the lender requires the borrower to borrow under the loan agreement.

Monthly Repayments

Monthly repayment is the sum you are required to pay the lender each month. This usually includes the interest as well.

Net Income

Net income is the total amount of money received after relevant deductions, such as taxes and levies.

Personal Instalment

A personal instalment is a term loan that disburses a fixed amount and has a fixed monthly repayment over a period of time.

Personal Loan

Personal loan is a financing taken out for a personal reason such as big-ticket household items including an overseas holiday, a car, furniture, elective surgery, or a wedding. Personal loans can be either secured or unsecured.

Principal

Principal of the loan is the total amount borrowed excluding any administration fees and interest.

Redraw

Redraw is a loan feature that enables the borrower to withdraw extra repayments they’ve already paid towards the loan. Usually, this is only allowed if they are far enough ahead on loan payments. This is not available on all loans.

Repayment Holiday

Repayment holiday is a period of no payments, which the borrower can apply for if they are ahead on their payments.

Representative APR

Reprensative APR is the annual interest charged against the borrowed amount. This percentage is a singular number that helps people to compare the loans offered by different banks in Malaysia. The Representative APR varies for everyone based on their credit score. The interest that ends up being charged for a person taking out a loan does not vary too much from the representative APR and under normal circumstances close to 60% of the applicants are offered the representative APR.

Revolving Loan

Revolving loan is a situation whenever you need money, you can borrow up to your credit limit with a revolving loan. When you’ve paid your monthly statement, you can borrow more. This is the opposite of a term loan.

Secured Loan

Secured loan is a loan where the borrower pledges the right to ownership of an asset as collateral for their debt. This collateral usually acts as some kind of insurance for the loan provider, as they can sell the security item if the borrower defaults on their loan. Therefore, because of the lower risk to the lender, secured loans offer lower interest rates than do unsecured loans.

Security

Security is a 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

Settlement is when a creditor agrees to accept a reduced payment on a debt, giving up their right to the remainder that is outstanding.

Stamp Duty

While processing a loan, there are a set of legal documents required. Stamp duty, otherwise known as stamp tax is the charge levied for making these legal documents during processing.

Statute of Limitations

Statute of limitations is 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.

Tenure

Tenure similar to a term is the amount of time provided in which one has to pay back the loan. Generally, the longer the tenure, the more interest a borrower will have to pay.

Term

Term is the duration of time in which a loan has to be repaid.

Term Loan

With a term loan, you have to make fixed monthly payments over the agreed loan tenor. This is the opposite of a revolving loan.

Total Amount Payable

Total amount payable is when you add the interest rates, processing and handling fees on top of the amount borrowed over the loan tenor, you get the total amount payable.

Unsecured Loan

An unsecured loan is a loan where the borrower does not pledge any asset as collateral for their debt. Due to the lack of collateral, there is a higher risk to the lender, and therefore the interest rates attached to unsecured loans are generally higher than those for secured loans.

Variable Interest Rates

Variable interest rates as the name suggests may fluctuate at any given point of time. Variable interest rates are pegged to the bank’s base lending rate and hence can fluctuate as per a fluctuation in the base lending rate of the bank.

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