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Principle of Banking

Chapter 6

TermDefinition
Banking Loan A loan to a business to meet short-term or long-term needs. Also known as a commercial loan
Savings Bank An institution that primary accepts interest-bearing time and checkable deposits for investment in mortgages and high-grade securities. A savings bank may also make loans to businesses and consumers.
Long-Term Loan A loan of a fixed amount that is repaid according to a specific schedule over a period of several years, typically one to 30 years
Captive Finance Company A finance company owned by a manufacturer to finance dealer
Asset-Based Financing A financing method usually focused on the cash flow of a particular asset or asset group for return on an investment or loan.
Commercial Paper Negotiable, short-term, unsecured promissory notes in bearer form issued by major corporations with unquestioned credit standing as a means of borrowing.
Consumer Loan A loan extended to consumers, either individually or jointly, primarily for the purpose of buying goods and services for personal use.
Secured Loan A loan for which the customer has pledged some form of collateral to protect the lender in case of default
Unsecured Loan A loan for which the borrower has not pledged some form of property as collateral in the event the loan is not repaid in full.
Grace Period The period of time before the payment due date during which a credit card account holder is allowed to pay off the monthly bill without having to pay additional interest.
Amortization The periodic reduction of the principal amount due on a mortgage or other term loan.
Promissory Note A written document with the customer's promise to pay a certain sum of money to the bank, with or without interest, on demand or on a fixed or determinable future date.
Adjustable-Rate Mortgage
Foreclosure A procedure to obtain legal title to property, typically for the purpose of selling the property to recover loan amounts.
Fixed Assets Assets used by a business for its long-term conduct of its enterprise, such as building, machinery, and furniture.
Secondary Mortgage Market transactions involving selling and purchasing mortgages. mortgage loans originate in the primary mortgage market. bundles of those mortgage loans may then be sold to investors in this market
Annual Percentage Rate Expressed in terms of the effective annual simple interest rate
Security Interest The right a lender has to obtain possession of the collateral, sell it, and retain the proceeds if the customer is unable to repay the loan.
Perfection The process by which a secured party protects its security interest from third parties
Payment Protection Products that are sold in conjunction with loans so that the loan can be paid if the customer dies, is injured or disabled, or loses a source of income.
Loan Review The function of examining loan documents to ensure they are accurate, complete, and conform to laws and regulations and the bank's loan policies and procedures.
Substandard Loan A loan whose risk is high given the collateral and the loan's structure.
Doubtful Loan A loan that probably will not be collected in its entirety and poses default risk.
Loss Loan An uncollectible loan or a loan that is not an appropriate asset for the bank.
Mortgage Servicer A company that collects mortgage payments from the borrower and performs other services, such as paying insurance and taxes from the borrower's escrow account.
Redlining Excluding potential loan customers because they wish to finance real estate located in a certain geographic area, regardless of whether they are depositors or meet all other criteria of creditworthiness.
Medical Information Information, oral or recorded in any form, created by or derived from a health care provider
Created by: Sharon.Spence
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