Understanding Finance Terms

If you are studying accounting, it pays to have a good understanding of finance, loans, and how they work. In fact, you will definitely need to have a basic understanding at least. With time, you must, of course, improve your knowledge and learning. Here are some finance terms that we come across every day. These terms are both for personal finance and business finance.

 

Personal Finance

 

Education Loan – Students seeking higher education ask for education loans to meet their costs. This kind of loan is usually granted by different Banks and Financial Institutions. The interest rate of this loan is usually lower and the repayment schedule is deferred until completion of the higher education.

 

Mortgage – This type of loan is usually taken by individuals or business organizations for a specific purpose, by mortgaging their personal property. These are long-term loans with monthly repayment schedules of principle and interest. If the debtor misses repayment schedules, the property held as security will be taken over by the creditor.

 

Vehicle Loans – This type of loan is taken by individuals to buy automobiles. In this loan, the car title is used as Collateral Security, but the client possesses and gets to use the car during the loan. The car’s title is taken over by the lender if the debtor is unable to repay the loan.

 

Personal Loan – It is a kind of unsecured loan where the loan is granted without any collateral security. Personal loans may be taken for various purposes like a wedding, medical emergency etc. This type of loan is usually given to people with high credit rating.

 

Home Loan – Banks and other financial institutions offer home loans to individuals. The loan is granted by mortgaging the title deed of the house property.

 

Loan against Insurance Policy – This kind of loan is taken by individuals against their life insurance policy from the respective insurance company.

 

Loan against PPF – This loan is taken against an active PPF account.

 

Business Finance

 

finance terms

 

Debentures – A publicly traded business offers debentures from time to time to raise capital. The business must pay back the profits to those who have made the investment, and thus debentures are a liability, though it helps the business raise funds.

 

Institutional Finance – This type of loan is borrowed by businesses from Financial Institutions like Banks, Insurance companies, Investment dealers etc.

 

Public Deposits – Public deposits serve as an important source of medium and long-term (6 months to 3 years) financing for a business. Companies invite public to make deposits, through printed media advertisements.

 

Bank Loan – Businesses mostly borrow from banks to fund their existing projects, and make fresh investments to grow. Bank loans can be either secured or unsecured. The rate of interest, tenure and repayment options are fixed by the lending bank.

 

Asset-Based Finance – It is a most popular method of short-term financing which is secured by the assets of the business such as accounts receivable, inventory, machinery, real estate etc.

 

Invoice Financing – It is a type of short-term borrowing where businesses use their unpaid sales invoices to borrow funds from financial institutions.

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