Non-Recourse Debt: Definition, Example, vs Recourse Debt

Non-Recourse Debt: Definition, Example, vs Recourse Debt Non-recourse debt is a type of loan where the borrower is not personally liable for repayment. In the event of default, the lender’s only recourse is to seize the collateral used to secure the loan. This means that if the borrower is unable …

Nonperforming Loan (NPL) Definitions, Types, Causes, Consequences

Nonperforming Loan (NPL) Definitions Types of Nonperforming Loans There are different types of nonperforming loans, depending on the nature and characteristics of the loan: Type Description Commercial NPLs These are loans given to businesses or corporations that have become nonperforming due to financial difficulties or other reasons. Consumer NPLs These …

Non-Amortizing Loan: Understanding the Meaning, Types, and Uses

Definition and Explanation of Non-Amortizing Loan How Non-Amortizing Loans Work Non-amortizing loans are commonly used in real estate transactions, particularly for commercial properties. They are also used for short-term financing needs or when the borrower expects to have a significant increase in income in the future. During the interest-only period, …

Nonaccrual Loan Definition FDIC Criteria Ways To Fix

Nonaccrual Loan Definition A nonaccrual loan is a type of loan that is no longer generating interest income for the lender. This typically occurs when the borrower is experiencing financial difficulties and is unable to make the required loan payments. As a result, the lender stops recording interest income on …

NINJA Loan: What You Need to Know in 2021

NINJA Loan: What You Need to Know in 2021 One of the main reasons people opt for NINJA loans is that they have a low barrier to entry. Traditional loans often require a good credit score, a stable income, and collateral. However, NINJA loans don’t have these strict requirements, making …

Negative Pledge Clause Definition How It Works Pros Cons

Negative Pledge Clause: Definition, How It Works, Pros, Cons A negative pledge clause is a contractual provision commonly found in loan agreements. It is designed to protect the lender’s interests by restricting the borrower from pledging certain assets as collateral for other loans or financial obligations. This clause ensures that …

Negative Amortization: Understanding, Overview, Examples

What is Negative Amortization? Negative amortization occurs when the principal balance of a loan increases over time instead of decreasing. This happens when the borrower makes minimum payments that do not cover the interest due on the loan. The unpaid interest is added to the principal balance, causing it to …

Money Factor Definition Uses Calculation and Conversion to APR

Money Factor: Definition, Uses, Calculation, and Conversion to APR The money factor is typically expressed as a decimal number, and it represents the monthly interest rate on a lease. For example, a money factor of 0.0025 would mean a monthly interest rate of 0.25%. To calculate the annual percentage rate …

Microcredit Definition How It Works Loan Terms

What is Microcredit? Microcredit is a financial tool that provides small loans to individuals who are unable to access traditional banking services. It is a form of financial inclusion that aims to alleviate poverty and empower individuals to start or expand their own businesses. The concept of microcredit was popularized …

Loss Given Default Calculation: Two Methods and an Example

Method 1: Collateral Value Approach The collateral value approach is one of the methods used to calculate the loss given default (LGD) in the context of credit risk analysis. This method focuses on assessing the value of the collateral that is available to the lender in the event of default …

Loan Shark Definition Example Vs Payday Lender

What is a Loan Shark? A loan shark is an individual or an organization that offers loans at extremely high interest rates and often uses illegal or unethical methods to collect payments. Unlike traditional lenders such as banks or credit unions, loan sharks typically operate outside of the legal financial …

Loan Servicing: Everything You Need to Know

What is Loan Servicing? Loan servicing refers to the process of managing and administering a loan after it has been disbursed to the borrower. It involves the collection of loan payments, maintenance of loan records, and handling of any issues or inquiries related to the loan. Functions of Loan Servicing …

Loan Production Office (LPO) Definition and Functionality

What is a Loan Production Office (LPO)? A Loan Production Office (LPO) is a specialized branch or office of a financial institution that focuses solely on the production and origination of loans. Unlike traditional bank branches, an LPO does not offer full banking services such as deposits and withdrawals. Instead, …

Loan Officer: Definition, Duties, Benefits, and Compensation

What is a Loan Officer? A loan officer is a financial professional who helps individuals and businesses secure loans from banks and other lending institutions. They play a crucial role in the lending process by evaluating loan applications, assessing creditworthiness, and determining the terms and conditions of the loan. Key …

Loan Modification Overview Government Programs Application

Loan Modification Overview A loan modification is a process that allows borrowers to make changes to the terms of their existing mortgage loan. This can be a helpful solution for homeowners who are struggling to make their monthly mortgage payments and are at risk of foreclosure. By modifying the loan, …

Loan Loss Provision: Definition and Use in Accounting

What is Loan Loss Provision? A loan loss provision is an accounting technique used by financial institutions to account for potential losses on loans. It is a reserve that banks set aside to cover potential losses from loans that may default or become uncollectible. The loan loss provision is an …

Loan Constant Calculation Formula Example

Loan Constant Calculation Loan constant is a financial metric used to calculate the annual debt service of a loan. It represents the ratio of the annual debt service to the total loan amount. The loan constant is expressed as a percentage and is used to determine the affordability of a …

Line of Credit Definition, Types, and Examples

Definition, Types, and Examples of Line of Credit A line of credit is a flexible borrowing arrangement that allows individuals or businesses to access funds as needed, up to a predetermined credit limit. It is a type of loan that provides borrowers with the ability to withdraw funds on an …

Lenders: Definition, Types, and Loan Decision-Making Process

Lenders: Definition, Types, and Loan Decision-Making Process What are Lenders? Types of Lenders There are various types of lenders available in the market, each with its own set of characteristics and requirements. Some common types of lenders include: Traditional Banks: These are the most well-known lenders that offer a wide …

IOU: Understanding the Basics, Mechanics, and Real-Life Examples

Exploring the Mechanics of IOUs When a borrower needs to borrow money or goods from a lender, they can issue an IOU as a promise to repay the debt. The IOU typically includes the amount borrowed, the terms of repayment, and any applicable interest or fees. It is a legally …

Installment Debt Meaning Types Pros and Cons

What is Installment Debt? Installment debt refers to a type of loan that is repaid over a set period of time through regular payments, or installments. This type of debt is different from revolving debt, such as credit cards, where the balance can fluctuate and the repayment terms are more …

Haircut: Its Significance In Finance And Examining Real-Life Examples

Examining Real-life Examples of Haircuts in Financial Transactions Real-life examples of haircuts can be found in various financial sectors. One such example is in the mortgage industry. When a borrower applies for a mortgage loan, the lender will typically assess the value of the property being used as collateral. However, …

Guaranteed Loan: Definition, How It Works, Examples

What is a Guaranteed Loan? A guaranteed loan is a type of loan that is backed by a third-party guarantee. This means that if the borrower defaults on the loan, the guarantor will step in and cover the outstanding balance. The guarantee provides additional security for the lender, making it …

Grace Period Definition for Borrowers, How It Works, Examples

What Is a Grace Period for Borrowers? A grace period for borrowers is a specific period of time during which a borrower is not required to make payments on a loan or credit card. This period typically follows the due date of the payment and is designed to provide borrowers …

Farmers Home Administration (FmHA) – Meaning, History, Examples

What is Farmers Home Administration (FmHA)? The Farmers Home Administration (FmHA) is a government agency that provides loans and financial assistance to farmers, ranchers, and rural homeowners. It was established in 1946 as part of the Department of Agriculture to help promote and develop rural areas. The FmHA offers various …

Evergreen Loans: What They Are, How They Work, and Tips for Success

Benefits of Evergreen Loans Evergreen Loans offer numerous benefits to borrowers, making them an attractive option for those in need of financial assistance. Here are some key advantages: 1. Flexible Repayment Terms Evergreen Loans provide borrowers with the flexibility to choose repayment terms that suit their financial situation. Whether you …

Equated Monthly Installment EMI How It Works Formula Examples

What is Equated Monthly Installment (EMI)? Equated Monthly Installment (EMI) is a fixed payment amount made by a borrower to a lender at a specified date each calendar month. It is used to repay both the principal amount and the interest on a loan, ensuring that the loan is fully …

Delinquent Account Credit Card Definition Example Impact

Delinquent Account Credit Card: Definition, Example, Impact A delinquent account credit card refers to a credit card account that has fallen behind on payments and is considered past due. When a credit card holder fails to make the minimum payment by the due date, the account becomes delinquent. This can …

Delinquency Rate: Definition, Tracking, and Reporting

Definition of Delinquency Rate The delinquency rate is a key metric used in the financial industry to measure the percentage of loans or credit accounts that are past due or overdue. It is a crucial indicator of the health of a lender’s portfolio and the overall creditworthiness of borrowers. Delinquency …