Plain-English definitions for the terms you'll encounter on your financial journey.
A company that is hired by a lender to recover funds that are past due or from accounts that are in default.
An individual who signs a loan along with the primary borrower and agrees to take responsibility for the debt if the borrower defaults.
A process where a borrower and lender negotiate new terms for existing debt, such as changing interest rates or extending the repayment period to avoid default.
The failure to meet the legal obligations of a loan, such as missing payments for a prolonged period or violating specific loan terms.
A binding court ruling in favor of a creditor when a debtor fails to respond to a lawsuit regarding an unpaid debt.
The risk that a lender takes on the chance that a borrower will be unable to make required debt payments.
A bond that has a lower credit rating and pays a higher interest rate because it carries a greater risk of default.
A rating indicating that a bond or issuer has a relatively low risk of defaulting on its debt obligations.
A bond that is considered to have a low risk of default and receives a high rating from credit agencies.
An insurance fee paid by borrowers, typically on FHA loans, to protect the lender in case of default. It usually consists of both an upfront payment and a monthly fee included in the mortgage payment.
A loan where the lender's only remedy in the event of default is to seize the pledged collateral, with no right to pursue the borrower's other assets.
Insurance that protects the lender if the borrower defaults, usually required if the down payment is less than 20 percent.
An insurance policy required by lenders when a borrower makes a down payment of less than 20 percent of the home's purchase price. It protects the lender in case the borrower defaults on the loan.
The act of a lender taking back an asset, such as a vehicle, after a borrower defaults on the loan used to purchase it.
The failure to repay a student loan according to the agreed-upon terms, typically occurring after 270 days of non-payment for federal loans.
A loan offered to individuals with lower credit scores at higher interest rates to compensate the lender for the increased risk of default.