Glossary of
Financial Terms
Improve your financial and wealth literacy using a comprehensive financial glossary with straightforward definitions of basic financial terms. We simplify terms, synonyms, and acronyms. Learn commonly used terms in wealth creation, debt management, financial planning, credit, and lending.
Aa
account
A statement of activity during a fiscal year resulting in a monetary balance. A record of transactions maintained by lending institutions to track proprietary payments and debts.
accounting date
Refers to the last date of a statement cycle. It is reflected on monthly statements of a fiscal year to report status and payment deadlines.
accrued interest
Interest that accumulates over time on a debt that you owe.
acquisition
The purchase of one entity by another; also known as a company takeover.
actuary
A business expert who measures financial risks using mathematics for theoretical projections to ensure financial security.
add-on interest
A type of loan that calculates a fixed monthly payment by combining the principal loan amount and its interest rate for the loan’s life.
Adjustable-Rate Mortgage (ARM)
A type of mortgage where payments vary throughout the life of the loan because of its fluctuating interest rate index. Also known as variable-rate mortgages or floating mortgages.
affidavit
A written declaration of facts voluntarily sworn under oath before an official.
annual percentage rate (APR)
The cost of credit, expressed as a yearly rate. The Federal Truth in Lending Act requires that all offers for credit indicates the credit’s APR so that consumers can understand the cost of the credit they are applying for so they can compare credit offers.
annuity
An amount paid out to a person by a particular time frame for an investment.
appraisal (lending)
An unbiased valuation of something regulated for financial lending services.
appreciation
An increase of an asset’s value over time.
arrears
The status of overdue dividends of an account that should have been resolved by prior due dates.
assets
Tangible or intangible resource of measurable economic value, benefit, or worth
assignment in bankruptcy
An insolvents assignment of all assets to a LIT for debt repayment.
audit
An examination of records against account transactions to ensure accuracy.
Bb
balloon payment
A final payment on a loan that is substantially larger than previous payments.
balance
A monetary figure used to reflect an amount on an account.
balance transfer
The process of moving debt from one credit-lending source to another credit-lending source.
bank
A for-profit financial institution that provides services to consumers.
bankrupt
A legal court declared status of an individual that is unable to pay his or her debt. Also known as insolvent.
bankruptcy
A legal procedure governed by federal law that helps consumers who have too much debt. There are two bankruptcy options for consumers – Chapter 13 reorganization and Chapter 11 liquidation. If you file for Chapter 13, you will have three to five tears to pay off your debts and the balance of what you owe on certain debts will be wiped out at the end of that time. Some debts will remain. If you file for Chapter 11, you will have to give up certain assets so that they can be sold and the proceeds will be applied to your debts.
bankruptcy trustee
A person licensed by the Superintendent of Bankruptcy to administer consumer proposals and bankruptcies. Also known as trustee.
Beacon/Pinnacle Score
A formerly branded scoring system by Equifax credit bureau.
bi weekly payments
An accelerate payment strategy to pay off debt quickly by making a total 26 payments during the 53 week calendar year.
borrower
A debtor.
budget
A semi-permanent management plan of income to meet financial goals.
Cc
capacity
The ability to repay a loan with current income; one of three factors in credit scoring.
capital
The money a person has available for a business investment.
cash advance
Cash obtained from credit card.
cash advance loans
A high-interest rate short-term loans available online and through brick-and-mortar for instant cash withdrawal.
cash value
The savings portion of a whole life, universal, or variable life insurance policy. You can borrow against that value.
co-signer
Someone who signs a credit agreement so that if the main borrower does not repay the debt according to the terms of the agreement, the creditor can look to that other person for payment. The main borrower and the cosigner are equally responsible for the debt.
collateral
Assets pledges as security for a secured debt. If you do not pay a debt that you have collateralized, the creditors can take the collateral.
collection agency
A business that collects past due debts for other businesses as well as individuals. Most collection agencies get paid for their services by taking a percentage of what they collect for their clients.
consolidation loan
A loan used to combine all outstanding loans, credit cards, and debts into one account balance for repayment.
consumer credit
Any loan or debt taken for personal and household consumption. See consumer debt.
consumer debt
Debts that are incurred by individuals as personal and household expenses.
Consumer Protection Act (CPA)
Legislation and regulations to protect consumers against unfair business practices on provincial and federal levels.
consumer rights
The right to have access to information about the quality of goods and services.
credit
A borrower’s ability to pay back a loan amount from a financial institution and keep the account in good standing.
credit agreement
A contract between a borrower and a creditor that details the amount borrowed, the applicable interest rate and all other terms of the credit.
credit bureau
A business that gathers information regarding a consumer’s use of credit and provides that information to businesses and organizations legally authorized to review it. Also called a reporting agency.
credit card
A payment card that allows holders to make a financial transaction using borrowed money from a credit lender.
credit history
A record of how you have managed your credit over time that is maintained by a credit bureau. Creditors, insurers, employers, and landlords use consumers credit record information as well as credit scores based on that information to make decisions about consumers. Also called a credit report, credit report, or credit file.
credit insurance
Repays a loan in the event of your death or disability.
credit limit
The maximum amount of money allotted to spend to a borrower on a credit card. Also known as spending limit.
credit practices rule
Protects you when you apply for credit with a retail business, auto dealer, credit union or finance company by requiring that they include specific disclosures in their consumer credit contracts. The disclosures relate to your rights should you fail to repay the credit according to the contract’s terms. It also requires that you be provided with certain written information if you agree to cosign someone else’s credit and gives you specific rights when it comes to late fees.
credit rating
A universal metrics scale used by lenders to provide credit to borrowers. See also: credit score.
credit repair
The process of removing inaccurate or outdated information from a credit record. Some credit repair firms use illegal methods to remove negative but accurate information from a consumer’s credit file.
credit report
A credit report is a written history of a consumer’s credit use. It is used by creditors and lenders to establish your creditworthiness and help assess your risk as a borrower.
credit risk
The probability that someone won’t pay their credit obligations as agreed. Borrowers considered to be a low credit risk get lower interest rates.
credit score
A number that is derived from the information in your credit history and that is an indicator how well you are likely to manage credit in the future. See also: credit rating
creditor
A person or business to whom you owe money.
current liabilities
Debts that will be due within the current year.
Dd
debit card
Allows you to pay for purchases out of your bank account or money market account without writing a check. The money for purchase may come directly out of your account at the time of purchase or your account at the time of purchase or your account may be debited for the cost of the transaction a couple days later if you use the card like a charge card.
debt
An amount of money owed to a lender from a borrower.
debt proposal
An alternative to filing bankruptcy using a consumer proposal with a repayment option that protects against creditors while allowing the debtor to keep assets as an alternative to filing bankruptcy.
debt ratio
A measurement of debt to asset expressed in decimal or percentage.
debtor
A borrower who owes a financial debt.
default
What you do when you do not live up to the terms of a credit agreement.
default judgement
A court judgment is issued by a judge when you are sued and don’t respond to the lawsuit.
deficiency
The difference between what you owe on a secured debt and what the asset that secures it sells for.
delinquency
The status of a line of credit or loan with a missed payment that is accruing and on the verge of default.
discharge
What happens when the court erases certain debts at the end of your bankruptcy so that you will not have to pay them.
discharge in bankruptcy
The courts’ legal release of an insolvent from debt repayment obligations to creditors after a bankruptcy has been issued. Also known as bankruptcy discharge.
down payment
The initial amount of money you may have to pay when you make a credit purchase.
Electronic Funds Transfer Act
A federal law that provides you with limited protections when unauthorized purchase and withdrawal are made using ATM or debit card or when errors related to purchases and withdrawals you made with your ATM or debit card appear on your bank statement.
emergency fund
A financial safety net to cover unexpected expenses in the event of job loss, medical emergency, or accidental property damage. A form of protection against debt accrual by maintaining financial soundness for an extended period in liquid savings.
equity
The difference between what your home is worth and the balance due on your mortgage and on any other financial obligations that your home may secure.
expenditure
A spender’s cost for tangibles and intangibles.
expense
An amount of money spent to buy something or do something.
Ee
fee
A sum of money a person pays as a penalty or for a service.
FICO score
A credit scoring system is used to determine a borrower’s financial loan eligibility.
finance charge
Another term for the amount of interest you pay a credit card company when you do not pay your card balance in full each month is the amount of interest you pay on your outstanding loan balance. The finance charge is expressed as a percentage rate, for example, 3.9 percent. 9.9 percent, 19 percent or some other amount.
financial advisor
A professional who provides financial economics advice to manage money for debts and investments.
financial literacy
The ability to make sound financial decisions using basic money management for credit, debt, and wealth.
financial planning
An outline of personal income for investments, savings, and debt management plans.
financial stress
A state of anxiety caused by the lack of money for debt obligations and expenses.
fixed asset
Are tangible assets purchased with assumed life-cycles of over a year.
fixed expense
A predictable cost for a financial obligation with a cost remains the same month over month.
fixed interest rate
An interest rate that stays the same for the lifetime of the loan.
forbearance
When a creditor agrees not to collect on a debt.
fund
When a financial resource releases money set aside for a purpose.
Gg
Ff
grace period
The time during which you can pay account balances in full without incurring a finance charge.
gross
Total of generated income prior to taxes and fees.
gross income
Total income earned in a year prior to tax deductions.
gross pay
An employer’s total compensation amount before any deductions.
guaranteed approval loan
High interest rate loans offered to bad credit borrowers.
guarantor
A person who agrees to pay a loan if the original borrower defaults on payments.
Hh
honouring a cheque
A bank agrees to pay the cheque amount to the payee.
honouring an agreement
The act of fulfilling an agreement. Also known as honouring a contract.
identity theft
The usage of someone else’s credentials to obtain goods or services.
income
Money generated from investment profits or pay from business transactions.
income tax
A tax imposed on personal salaries.
inflation
The gradual increase in prices over time on goods that devalues the buying power of money.
insolvency
A person or the state of being unable to repay debt. See also: bankruptcy
insolvency trustee
A licensed person who administers bankruptcies and consumer proposals. See also: licensed insolvency trustee.
installment loan
A loan that you repay over time by making periodic payments of principles and interest at specific intervals.
interest (lending)
A percentage charged for borrowing money. Also known as an interest rate.
Ii
Jj
joint account
A financial account held by more than one person.
joint debt
The legal responsibility of debt created by a borrower for a consigner and guarantor ensures full repayment of debt.
judgement
The court’s final decision at the end of a lawsuit.
judgement proof
When you have no assets that a creditor can take in order to satisfy a judgment against you.
Ll
lender
A financial institution that loans money to borrowers.
liabilities
The owing of debts and financial obligations.
lien
A creditor’s claim against property you own. When a creditor has a lien on one of your assets, if you do not pay the debt that is associated with that lien, the creditor has the legal right to take the property. Your mortgage lender has a lien against your home and on your car.
liquidity
Accessible money or the facility to convert assets to cash.
Mm
maintenance
A service fee that is charged for the usage or access to a financial account and/or a financial service. Also known as a service charge.
maturity date (lending)
The date when the life of a loan ends or a financial investment becomes available.
maximum withdrawal
The most amount of money one may take out of an account without penalty. Amount in excess may need prior approval.
minimum payment
The least amount of money accepted to remain in good standing on a loan or credit repayment.
mutual fund
A mutual fund is a type of investment fund. In Canada, mutual funds are generally structured as trusts or corporations, which are separate legal entities from the management company that administers them. Investing in a mutual fund gives an investor units or shares of the fund.
Nn
net pay (income)
The take home pay cheque amount after the deductions of taxes and benefits from the gross pay amount.
non-profit
An business organization that commits to a social cause as a charity or public sector agency, not for profit, but social obligation.
Oo
occupation
The field of work, a person, is employed in.
ombudsman
A non-profit entity that resolves complaints against financial institutions on behalf of small businesses and consumers.
open-end credit agreement
A credit agreement with no specific date by which you must pay the account balance in full although you must make monthly minimum payments on the balance. Credit cards are a typical example of open-ended credit as are retail store charge cards and gasoline cards.
orderly payment of debts
A debt repayment option is offered in many Canadian provinces where a fixed interest rate of 5% is applied to total debt on a 5-year life term.
overdraft
Withdrawal of funds beyond the amount present in a chequing account. Also known as overdraw.
overdue
The status of a payment for a missed due date. Also known as past due.
Pp
payday loan
A high-interest rate short-term loans available online and through brick-and-mortar for instant cash withdrawal.
payment hearing
A payment mandate on a debt assigned by the courts.
periodic rate
A credit agreement with no specific date by which you must pay the account balance in full although you must make monthly minimum payments on the balance. Credit cards are a common example of open-ended credit as are retail store charge cards and gasoline cards.
personal finances
An individuals’ personal decisions in regards to income, investments, and debt management.
property
Property refers to securities, cash balances, commodities, futures contracts, segregated insurance funds or other property, received, acquired, or held by, or in the control of, the member firm for the client, including property unlawfully converted.
personal property
An asset that can be moved, as opposed to real estate, which is fixed. Your personal property may include vehicles, furniture, jewelry, fine art, and so on.
portfolio manager
A portfolio manager is a firm authorized to provide advice to a client with respect to investing in, buying or selling any security. If a client allows it, the portfolio manager can also make investment decisions without the client’s permission (called “discretionary authority”). In most cases, a portfolio manager is not a CIPF member.
Advising representatives are individuals (like a financial advisor) acting on behalf of a portfolio manager, who provide advice to clients with respect to investing in, buying or selling securities.
Portfolio managers and the advising representatives they engage must register with their provincial or territorial securities regulator. You can check the registration category or categories of a firm or individual through the Canadian Securities Administrators’ National Registration Search database.
preferred creditor
A preferred creditor is paid in priority to regular unsecured creditors. In a business bankruptcy employees who are owed wages are preferred creditors, and receive payments before regular unsecured creditors.
prepayment penalty
A penalty you may apply if you pay off a loan early. The penalty helps compensate the lender for the fact that it will not earn as much interest income on the loan as if you had continued paying on it until the loan term was up.
principal
The amount of money you borrow. The principal does not include interest.
punitive damages
Money that a court may order a business to pay you as punishment for harming you in some way and to encourage the business not to repeat its illegal behavior.
quarterly statement
A detailed overview of account activity covering three-month intervals.
Rr
refinance
To pay off an existing loan and get a new loan in order to lower your interest rate, get more or less time to pay off the original loan, and so on. You may also refinance as a way to raise cash and liquidate equity.
registered retirement savings plan (RRSP)
A retirement and investing plan for Canadian workers.
repayment
The act of paying back a lender.
repossession
When a secured creditor takes back your collateral- your car for example- because you did not live up to your agreement with the creditor.
Ss
Securities
A “security” is a type of financial instrument. Examples of securities include: bonds, GICs (guaranteed investment certificates), shares or stock of a company, units or shares of an investment fund such as mutual fund or an ETF (exchange-traded fund), and units of limited partnerships.
A share or stock is an ownership interest in a company issued by that company. Securities issued by trusts or partnerships are often referred to as “units”. The company or other legal entity that issues the securities is also often called the “issuer” of securities.
Shortfall
The term shortfall is used in the context of insolvencies administered under Part XII of the Bankruptcy and Insolvency Act (Canada). It refers to the difference, as determined by the trustee in bankruptcy, between property available to be returned to clients and property that the member firm owes to its clients at the date of bankruptcy of the member firm.
Tt
term
The length of time that a loan agreement will be in effect- from the date that the agreement is signed to date that the loan will be paid in full.
trustee
A person licensed by the Superintendent of Bankruptcy to administer consumer proposals and bankruptcies.Also known as bankruptcy trustee.
Truth and Loan Companies Act
A federal law that requires specific disclosures about the terms credit so that consumers can make informed decisions regarding whether a particular credit offer is a good idea for them. It also gives you a variety of other rights when you apply for or use credit.
Uu
unsecured creditor
A lender who provides credit to a person without any collateral for the debt amount.
unsecured debt
A debt for which no assets are pledged to guarantee payment. The most common types of unsecured debt is credit card debt.
unsecured loan
A credit for an amount of money without the use of collateral.
usury laws
State laws that regulate the interest rates that creditors can charge consumers.
variable expense
Costs that change month to month; groceries or utility. These costs may be higher in the winter and the budget adjusted accordingly.
Vv
Ww
wage garnishment
What may happen if you do not pay a debt that you owe. The creditor you owe the money to could get a judgment against you and then get the court’s permission to take a percentage of your wages in order to get its money. Your employer will be legally required to deduct garnishment amount from your pay checks. Not all state permit wage garnishment.
wealth-building
A long term strategy used to build wealth.
will
A legal document that provides the distribution of the holder’s assets upon death. Also known as a testamentary trust.
withdraw
The removal of money from a financial account.
Yy
yield
A formula expressed as a percentage of profits and earnings for investment over a set period of time.
Zz
zero down payment