Loan & Finance Glossary

Amortisation

The process of paying off a loan through regular EMI payments over time. Each payment covers both interest and principal, with the interest portion decreasing over time.

Annual Percentage Rate (APR)

The true yearly cost of a loan, including interest and all fees (processing fee, insurance etc.). Always higher than the stated interest rate.

Asset

Any property, investment, or resource you own that has monetary value — used by banks to assess your net worth and loan repayment capacity.

Balance Transfer

Moving your existing loan from one bank to another to get a lower interest rate. Common for home loans when another bank offers a better rate.

NACH (Auto-debit)

National Automated Clearing House — the system banks use to automatically debit your EMI from your account on the due date every month.

CIBIL Score

A 3-digit credit score (300–900) calculated by TransUnion CIBIL based on your credit history. 750+ is considered excellent. Banks check this before approving any loan.

Collateral

An asset (property, gold, FD) pledged to the bank as security against a loan. If you default, the bank can sell the collateral to recover the loan.

Co-applicant

A second person (usually spouse or parent) who applies for the loan along with you. Adds their income to increase loan eligibility.

Credit Report

A detailed record of your entire borrowing and repayment history — all loans, credit cards, defaults, and enquiries. Maintained by CIBIL, Experian, Equifax, and CRIF.

Default

Failure to repay loan EMIs as agreed. Even one missed EMI is a default and damages your CIBIL score. Repeated defaults can result in NPA classification.

Disbursement

The actual release of loan funds to your account or to the seller / builder. Disbursement may be full (lump sum) or partial (staged, as in construction loans).

Down Payment

The amount you pay from your own funds when purchasing a property or asset. For home loans, this is typically 10–25% of the property value.

EMI (Equated Monthly Instalment)

The fixed monthly amount you pay to repay your loan. Each EMI contains a principal component and an interest component. Use our EMI Calculator to compute yours.

Encumbrance Certificate (EC)

A legal document proving that a property is free from any loans, mortgages, or legal dues. Required for home and mortgage loans. Obtained from the sub-registrar's office.

Equity

The difference between the current market value of your property and the outstanding loan balance. As you repay and property appreciates, your equity grows.

Fixed Rate Loan

A loan where the interest rate remains constant throughout the tenure, regardless of market changes. Offers predictability but usually starts higher than floating rates.

Floating Rate Loan

A loan where the interest rate changes with the benchmark rate (repo rate). Lower when rates fall, higher when rates rise. Most home loans today are floating rate.

FOIR (Fixed Obligation to Income Ratio)

The percentage of your income used for loan EMIs and fixed financial obligations. Most banks have a maximum FOIR of 40–50%. Use our FOIR Calculator.

Foreclosure

Closing a loan before the original tenure by paying the full outstanding balance. Most banks allow foreclosure for home loans without penalty after 12–24 months.

Guarantor

A third party who signs the loan agreement and promises to repay if the borrower defaults. Banks may ask for a guarantor for weaker applicant profiles.

GST on Loans

GST (18%) is charged on processing fees and other loan-related charges — not on the loan amount or interest. A ₹10,000 processing fee will actually cost ₹11,800.

Hard Enquiry

When a bank checks your credit report after you apply for a loan. Each hard enquiry slightly reduces your CIBIL score. Multiple applications in a short time can hurt your score significantly.

HRA (House Rent Allowance)

A salary component for employees who live in rented accommodation. Partially exempt from income tax. Use our HRA Calculator.

Interest Rate

The cost of borrowing money, expressed as a percentage per annum. For a ₹10 lakh loan at 10%, annual interest is ₹1 lakh (reducing balance method).

ITR (Income Tax Return)

Annual income tax filing submitted to the Income Tax Department. Banks require ITR for the last 2–3 years to verify income for self-employed applicants.

LAP (Loan Against Property)

A secured loan taken by mortgaging your residential or commercial property. Offers lower rates than personal loans. Amount = 60–70% of property value. Also called mortgage loan.

LTV (Loan to Value)

The ratio of loan amount to property value, expressed as a percentage. RBI mandates maximum LTV of 90% for loans up to ₹30L, 80% up to ₹75L, and 75% above ₹75L. Use our LTV Calculator.

MCLR (Marginal Cost of Funds based Lending Rate)

An internal benchmark rate set by banks monthly. Home loans linked to MCLR change rate at reset date (usually 1 year). Being replaced by RLLR for new loans.

Moratorium

A temporary pause in loan repayment granted by the bank during financial hardship. Interest continues to accrue during the moratorium period.

NPA (Non-Performing Asset)

A loan that has not received any principal or interest payment for 90+ days. Once classified as NPA, it severely damages your credit score and can lead to legal action.

NOC (No Objection Certificate)

A document from the bank confirming your loan is fully repaid. Needed to clear property documents after home loan closure. Always collect this after loan closure.

Part Payment / Prepayment

Paying a lump sum amount towards your loan principal before the scheduled tenure. Reduces outstanding balance, cuts interest cost, and shortens tenure. Use our Prepayment Calculator.

Post-dated Cheques (PDCs)

Cheques given in advance to the bank for future EMI dates. Being replaced by NACH auto-debit. Some banks still require PDCs as backup.

Principal

The original loan amount borrowed, before any interest. Each EMI payment reduces the outstanding principal over time.

Processing Fee

A one-time fee charged by the bank when processing your loan application. Typically 0.5%–2% of loan amount. Non-refundable even if loan is rejected.

Reducing Balance Rate

Interest calculated on the outstanding principal each month — as you repay, interest reduces. Standard method used by banks. Much cheaper than flat rate. See Flat vs Reducing Calculator.

RLLR (Repo Rate Linked Lending Rate)

A home loan interest rate directly linked to RBI's repo rate. When RBI cuts rates, your EMI reduces within 3 months. Mandatory for all new floating-rate home loans.

Repo Rate

The rate at which RBI lends money to commercial banks. When repo rate falls, bank lending rates and your loan EMIs typically reduce too.

Sanction Letter

The bank's official approval of your loan, specifying the amount, interest rate, tenure, and conditions. Required before property registration. Valid for 3–6 months.

Secured Loan

A loan backed by collateral (property, gold, FD). Home loans, LAP, and car loans are secured. Lower interest rates and higher amounts than unsecured loans.

Sub-vention Scheme

A scheme where the builder pays the home loan interest during the construction period on behalf of the buyer. Risky if the builder defaults.

Tenure

The time period over which you repay the loan. Longer tenure = lower EMI but more total interest. Shorter tenure = higher EMI but less total interest cost.

Title Deed

The legal document proving ownership of a property. Banks verify title deed before approving home or mortgage loans to ensure clear and marketable title.

Top-up Loan

An additional loan taken on top of your existing home loan from the same bank. Interest rates are similar to home loan rates — much cheaper than personal loans.

Underwriting

The bank's process of assessing your loan application — verifying income, checking CIBIL, valuing property, and deciding whether to approve and at what rate.

Unsecured Loan

A loan with no collateral — personal loans, education loans, and most business loans are unsecured. Higher interest rates than secured loans as the bank takes more risk.