Smart Borrower's Guide

Accrued Interest

Interest that has accumulated between the most recent payment and the sale of a security, i.e. deemed to be earned on a security but not yet paid to the investor. At the time of the sale, the buyer pays the seller the security’s price plus accrued interest

Bad Debt

Open account balance or loan receivable that has proven uncollectible and is written off.

Cash Advance

A loan taken out against a line of credit or credit card, typically imposing higher-than-normal interest charges.

Default

Failure to pay principal or interest when due. Defaults can also occur for failure to meet nonpayment obligations, such as reportingrequirements, or when a material problem occurs for the issuer, such as a bankruptcy.

Depreciation

Amortization of fixed assets, such as plant and equipment, so as to allocate the cost over their depreciable life.

Interest

Compensation paid or to be paid for the use of money. Interest is generally expressed as an annual percentage rate.

Internal Rate of Return (IRR)

Discount rate at which the present value of the future cash flows of an investment equal the cost of the investment.

Minimum payments

A fixed amount that should be paid on a monthly basis. Usually applied to credit card payments, based on a percentage of the total credit.

Prepayment

The unscheduled partial or complete payment of the principal amount outstanding on a mortgage or other debt before it is due.

Prepayment risk

The risk that falling interest rates will lead to heavy prepayments of mortgage or other loans-forcing the investor to reinvest at lower prevailing rates.

Present Value

Value today of a future payment, or stream of payments, discounted at some appropriate compound interest rate.

Ratings

Designations used by credit rating agencies to give relative indications of credit quality.al of a security.

Registered bond

A bond whose owner is registered with the issuer or its agent. Transfer of ownership can only be accomplished when the securities are properly endorsed by the registered owner.