Loan Vocabulary

Principal: The original amount you borrow.

  • The amount you must repay is more than the original principal that you borrow because the lender charges you for the use of the money.

Interest: The additional charge on your loan. 

  • Interest accrues on the principal balance of your loan.

Fees: Additional cost for use of the borrowed money.

Cosigner: A person who agrees to be jointly responsible for repaying a loan along with the borrower.

  • A creditworthy cosigner often enables a borrower lacking sufficient credit history to qualify for a loan.
  • The addition of a cosigner on a loan may result in better loan terms (e.g., lower interest rate or lower fees).
  • The cosigner is equally responsible for the debt as long as it is outstanding, unless formally released from the obligation during repayment.
  • A cosigner is not required for a federal loans, but is usually required for other types.