Breaking Down Loan Jargon

Loan Terms You Should Know

Hiker Confusing Sign
Clarifying the Loan Jargon

If you’re considering taking a loan, you’ve probably heard terms like DTI, APR and FICO (just to name a few), making loan documents seem like alphabet soup.

While these terms may seem confusing, these are terms you should know to be an informed consumer.

One of the most common terms is APR. This stands for Annual Percentage Rate. APR is a standard term that helps you compare apples-to-apples when shopping around for a loan. It includes total interest and fees that are charged each year on a loan.

Another term used is DTI, or debt-to-income ratio. DTI measures your total outstanding debt to your annual income. Lenders use your DTI to determine your ability to pay back a loan. The lower your DTI, the better your loan terms.

Like DTI, lenders also use your FICO score. Determined by the Fair Isaac Corporation, your FICO score is the most common type of credit score and is measured on a scale between 300 and 850. Lenders use your FICO score to determine if they will lend to you and, if so, with what kind of terms. The higher your score, the better your credit.

Remember, these terms are just the tip of the iceberg. This loan jargon is a never-ending list of terms and acronyms. To learn more of them, check out Life. Money. You’s Mortgage Term Glossary.