Defining Common Banking Terms
Banking is one of the most important industries in the world
today... the economy of every country in the world flows through
the various banks and financial institutions that exist in the
world.
There are times, though, that some of the terminology that's
used in banks and the banking industry might seem a bit
confusing to those who aren't exactly sure how they work.
Below you'll find a list of common banking services and terms,
compiled to assist you in making your banking decisions in case
there are some terms that you aren't familiar with.
Chequeing
Chequeing accounts are one of the most common types of bank
accounts in the world, but there are some individuals who might
not be sure exactly how the cheque writing process works.
Basically, a cheque is a form of contract between an individual
and the recipient... the cheque is submitted to the recipient's
bank, and its value is transferred from the writer's account to
the recipient's.
Debit
Working on much the same principal as a cheque, debit cards
transfer funds from an account held by the user and an account
held by a business or individual. Unlike cheques, however, the
debit card uses credit card processors and doesn't require the
same amount of time as cheque writing. Additionally, there
aren't any cheques to write and no chequebook to carry around.
Interest
Interest is a term that can have two meanings, depending upon
which type of banking service it's used in conjunction with.
When used with savings, chequeing, or money market accounts,
interest is the amount that is paid to you monthly based upon
the balance that you have. For loans, credit cards, and other
such services, however, interest is an additional fee that you
pay that is added on to the monthly balance of your debt.
Annual Percentage Rate
The annual percentage rate, or APR, is used when determining
interest on credit cards. The APR is based upon national
interest rates and other rates determined by the bank and
dependant upon the credit rating of the cardholder. The APR that
you pay may fluctuate, and the lower it goes the less interest
you have to pay each month.
Equity
Equity is a representation of how much of a mortgage has been
paid off... some people look at it as how much of your home or
real estate you actually "own". This percentage of how much debt
has been cleared from your property can be used as collateral
for some types of loans, and can be an important factor in
refinancing a home loan.
Balloon Payment
A balloon payment is a specific type of mortgage payment, and is
named "balloon payment" because of the structure of the payment
schedule. For balloon payments, the first several years of
payments are smaller and are used to reduce the total debt
remaining in the loan. Once the small payment term has passed
(which can vary, but is commonly 5 years), the remainder of the
debt is due... this final payment is the one known as the
"balloon" payment, because it is larger than all of the previous
payments.
Closing Costs
Closing costs are additional costs associated with the purchase
of real estate and some other high-value items. Once the loan
has been approved to pay for the purchase and all of the
paperwork has been completed, various costs associated with
filing, legal fees, and other commonalities are due at the time
of closing the deal. While there are some mortgage lenders who
don't charge closing costs, they are required in most cases.
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