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10 Financial Terms Everyone Should Know Before You Get a Personal Loan

Hyperrealistic image of a young professional sitting at a desk with laptop and documents, learning about key financial terms like credit score, EMI, and loans
Master the basics of finance! From credit scores to EMIs, here are 10 financial terms every borrower must know.

When it comes to loans, credit cards, or debt management, knowing the right financial terms can make all the difference. At One Day Finance, we believe that financial literacy empowers you to make better decisions. Here are 10 key terms every borrower should understand


  1. What is a Credit Score?

    A credit score is a three-digit number that reflects your creditworthiness. Lenders check this score before approving a loan to assess how likely you are to repay. A higher score means better chances of approval and lower interest rates.


  2. What is a Credit Report?

    A credit report is a record of your credit history, including loans taken, repayment patterns, and current outstanding balances. Reviewing your report regularly helps you spot errors and track how lenders see your financial profile.


  3. What is a Personal Loan?

    A personal loan is unsecured credit that you can use for multiple needs like education, medical emergencies, or travel. Since no collateral is required, lenders primarily assess your income and credit history before approving it.


  4. What is Debt Consolidation?

    Debt consolidation means combining multiple debts—like credit card bills or small loans—into a single loan with one EMI. Debt consolidation makes repayment simpler and can help reduce your overall interest burden.


  5. What is an EMI (Equated Monthly Installment)?

    EMI is the fixed monthly payment you make toward a loan. It includes both principal and interest, spread across the loan tenure. Understanding EMI helps you plan your budget effectively.


  6. What is an Interest Rate?

    The interest rate is the cost of borrowing money, expressed as a percentage. It can be fixed (stays the same) or floating (changes with market conditions). Even small differences in rates can impact your total repayment significantly.


  7. What is Collateral?

    Collateral is an asset—such as property, gold, or fixed deposits—pledged to secure a loan. If repayment fails, lenders can claim the asset to recover the loan amount. Personal loans usually don’t require collateral.


  8. What is an Overdraft Facility?

    An overdraft allows you to withdraw more than what’s in your bank account, up to an approved limit. It works like a short-term loan, and you pay interest only on the amount you use.


  9. What is a Processing Fee?

    This is a one-time, non-refundable fee charged by lenders while sanctioning a loan. Usually ranging between 1%–3% of the loan amount, it adds to your overall borrowing cost.


  10. What is Loan Tenure?

    Tenure is the period over which you repay your loan. A shorter tenure means higher EMIs but less interest overall, while a longer tenure lowers EMIs but increases total interest paid.


Final Thoughts


Understanding these 10 financial terms will make you more confident while applying for loans or managing credit. At One Day Finance, we simplify the loan process and guide you toward the right solution—whether it’s a personal loan, overdraft, or debt consolidation.


Looking for expert help? Connect with One Day Finance today for a free consultation.

 

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