Debt consolidation and useful terminology, part 2

The world of finance, with credit cards, debt consolidation, interest rates and annual percentage rates, is complete with terms that many people might not know well. In this second part of our article defining these terms, we will continue our glossary of terms that you should know if you are going to take part in any monetary transactions.

Continued below

Grace Period - The grace period is the amount of time provided by some credit card banks that falls between the time the card is used and the time the payment is due. Grace periods average approximately 25 days, but there is no grace period if you have a balance on your account. If your account has no grace period, interest will accrue from the moment the credit card is used.

VantageScore - Similar to FICO scoring in how it functions, VantageScore uses unique formulae and different scores. VantageScore is a credit scoring process used by several of the credit bureaus.

Predatory Lending - Predatory lending describes when lenders offer home loans or second mortgages to customers with the purpose of taking advantage of them. Predatory loans frequently come with high interest rates and exorbitant fees and lenders often offer the home loans with hopes of getting the borrowers to refinance again and again.
 

Refund Anticipation Loan - A Refund Anticipation Loan is a cash advance loan provided by a tax preparation company against a projected state or Federal income tax refund. Refund Anticipation Loans have a tendency to have fees associated with them which translate to twelve month interest rates that can rank with payday loans or quick cash loans.

Minimum Payment - Failure to pay the least required payment will usually incur a penalty fee. While you may pay more if you wish, this figure represents the smallest sum the lender will take. A minimum payment is the minimum permissable amount to the lender on a statement. As of 2005, the majority of major credit card companies have increased their minimum payments as a percentage of the total debt.

Payday Loans - Payday loans are brief loans created to help the borrower get by until their next paycheck. Quick cash loans are not provided by banks but by unaffiliated lending companies, often combined with pawn shops. Payday loans are often known as cash advance loans or quick cash loans. The prices charged for payday loans or cash advance loans tend to be fairly high when compared with other borrowing options, such as bank or credit card loans.

Identity Theft - Identity theft is the practice of illegally obtaining private information from someone with the intent of making use of that information for private gain. Identity criminals pretend to be their victim while also applying for new credit accounts and making considerable purchases, all of which are charged to the victim's credit card.

Subprime Loan - Subprime loans provided to those with suboptimal credit histories. Subprime loans carry higher fees and steeper interest rates than the more conventional "prime" home loans that are offered to those with acceptable credit. The subprime sector is relatively successful, due to the prohibative interest rates, and more lending institutions are beginning to actively look for subprime borrowers.

Universal Default Clause - Credit card issuing banks defend the universal default provision, arguing that late payments make customers more likely to refrain from paying their debts. This provision is employed in credit card agreements that may specify that the issuing bank may increase a person's rate if they make late payments to anyone.

If you experience any dealings with banks, credit card issuers or mortgage servicers, you will almost certainly encounter these terms regularly.