Breaking Down Financial Jargon: Common Terms Every Member Should Know

Robins Financial Credit Union is dedicated to our mission to be Member Focused, Financial Partners, Community Proud. We empower our members with the financial knowledge and resources they need to make informed decisions and achieve their financial goals.

Navigating your finances can be empowering , but sometimes, it feels like you need a translator just to understand the language. Between abbreviations, industry lingo, and formal banking terms, financial jargon can be confusing. Whether you're applying for a loan, reviewing your credit report, or opening a savings account, it's important to understand the language used in the financial world.

At Robins Financial, we believe in empowering our members through education. That starts with making sure you understand the words and terms used in everyday banking. We've provided a breakdown of some of the most common financial terms - made simple.

amortization

• What it means: Amortization is the process of paying off a loan over time through regular payments. Each payment covers both interest and principal, with the interest portion typically  higher at the beginning and decreasing over time.
• Why it matters: Understanding amortization helps you see how much of your monthly loan payment is going toward interest versus reducing the principal. It also explains why making extra payments early in the loan term can save you more money over time. 

Annual percentage rate (apr)

• What it means: APR is the cost of borrowing money, expressed as a yearly interest rate. It includes not only the interest on the loan, but also any fees or additional costs.
• Why it matters: Comparing APRs when shopping for loans or credit cards can help you understand which offer is truly the most affordable over time.

annual percentage yield (apy)

• What it means: APY tells you how much interest you will earn on a deposit account (like a savings or certificate of deposit) in one year, factoring in compound interest.
• Why it matters: A higher APY means more money earned on your deposits. When comparing savings accounts, look at APY, but just the base interest rate. 

compound interest

• What it means: Interest calculated on the initial principal and the accumulated interest from previous periods.
• Why it matters: Compound interest works in favor when saving, and against you when borrowing. The earlier you save, the more you benefit.

Credit score

• What it means: Your credit score is a three-digit number that represents your creditworthiness. It's based on factors like payment history, credit utilization, and length of credit history.
• Why it matters: Lenders use this number to decide whether to approve your application and what interest rate to offer. Higher scores can mean better loan terms.

Credit report

• What it means: This is a detailed report of your credit history, including loans, credit cards, payment history, and inquiries.
• Why it matters: It's essential to check your credit report regularly for accuracy and to understand how lenders view your financial behavior. You're entitled to a free report from each of the three major credit bureaus once a year. 

Debt-to-income ratio (dti)

• What it means: DTI compares your monthly debt payments to your monthly gross income. It's a key indicator lenders use to determine your ability to repay a loan.
• Why it matters: A lower DTI makes you more attractive to lenders and can help you qualify for better rates and terms on future loans. Financial experts recommend keeping your DTI below 36%.

Equity

• What it means: Equity is the portion of an asset (like your home) that you truly own, calculated as the current market value minus what you still owe on it.
• Why it matters: Equity can be used to secure loans, like a home equity loan or line of credit. It also reflects your progress in paying off a mortgage.

Escrow

• What it means: In a mortgage, escrow is a separate account used to pay property taxes and insurance premiums on your behalf.
• Why it matters: Your escrow ensures these expenses are paid on time but can also cause your monthly mortgage payment to fluctuate if taxes or insurance changes.

Pre-approval vs. Pre-qualification

• What it means: A pre-qualification gives you a rough estimate of what you may be able to borrow, based on unverified information. A pre-approval is a more thorough review that includes a credit check and income verification.
• Why it matters: A pre-approval carries more weight with sellers and can streamline the loan process when you're ready to buy.

Principal

• What it means: Principal refers to the original amount of money you borrow or invest, not including interest.
• Why it matters: Understanding the principal helps you see how much of your payment is going toward the actual debt versus interest.

Financial terminology doesn't have to be intimidating. When you understand the language, you can ask better questions, make informed decisions, and feel more confident managing your money.

As your trusted financial partner, we're here to support you every step of the way. Whether you're buying your first home or just trying to build better habits, knowledge is one of the most powerful tools.

If you ever have questions or need clarification on other financial terms, our team is here to help! Just stop by your nearest branch location to speak with a member of our team.

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