Financial Glossary
30 loan and credit terms explained in plain language. No jargon, no confusion.
Credit
CIBIL Score
A 3-digit number (300–900) that represents your creditworthiness. India has 4 RBI-certified credit bureaus that maintain these scores: TransUnion CIBIL, Experian, Equifax, and CRIF High Mark. Banks and NBFCs check your score from one or more bureaus before approving loans or credit cards. 750+ is considered good and qualifies you for the lowest interest rates.
Learn more →Credit Utilization Ratio
The percentage of your credit card limit that you are currently using. If your limit is ₹1,50,000 and outstanding is ₹60,000, your utilization is 40%. Keeping it below 30% is crucial for a good CIBIL score. Above 50% significantly drags down your score.
Learn more →Hard Inquiry
A credit check that happens when you formally apply for a loan or credit card. Each hard inquiry can reduce your CIBIL score by 5–10 points and stays on your report for 2 years. Multiple inquiries in a short period signal desperation to lenders.
Soft Inquiry
A credit check that does NOT affect your CIBIL score. Happens when you check your own score, when GoCredit shows you pre-approved offers, or when lenders do promotional pre-screening. You can make unlimited soft inquiries safely.
Credit Report
A detailed document showing your entire credit history — all loans, credit cards, payment history, inquiries, and defaults. Maintained by 4 bureaus in India: TransUnion CIBIL, Experian, Equifax, and CRIF High Mark. You are entitled to one free report per year from each bureau.
Learn more →NPA (Non-Performing Asset)
A loan where the borrower has stopped making payments for 90+ days. Being classified as NPA severely damages your CIBIL score (can drop it by 100+ points) and makes it nearly impossible to get new credit until resolved.
Loans
EMI
Equated Monthly Instalment — the fixed amount you pay every month to repay a loan. Each EMI includes both principal repayment and interest. Calculated using the formula: EMI = P × r × (1+r)^n / ((1+r)^n − 1).
Learn more →APR (Annual Percentage Rate)
The total yearly cost of a loan expressed as a percentage. APR includes the interest rate PLUS processing fees, GST, and other charges. It is always higher than the advertised interest rate and gives a more accurate picture of loan cost.
Processing Fee
A one-time charge by the lender for processing your loan application. Typically 0.5%–3% of the loan amount + GST. It is deducted from the loan amount before disbursal. Some lenders offer zero processing fee during promotional periods.
Reducing Balance Method
The standard method used by banks to calculate EMI interest. Interest is charged only on the outstanding principal (which reduces each month as you pay EMIs). This means you pay less total interest over time compared to the flat rate method.
Learn more →Flat Rate Interest
Interest calculated on the ORIGINAL loan amount throughout the tenure, not the reducing balance. A 10% flat rate equals roughly 18–19% reducing balance rate. Always convert flat rates to reducing balance before comparing loan offers.
Prepayment / Foreclosure
Paying off your loan (partially or fully) before the scheduled tenure ends. RBI mandates no prepayment penalty on floating rate loans. Fixed rate loans may have 2–5% penalty. Prepaying early saves significant interest — especially in the first half of the tenure.
Amortization Schedule
A detailed table showing the breakup of each EMI into principal and interest components, along with the outstanding balance after each payment. In the early months, most of your EMI goes toward interest. By the end, most goes toward principal.
Learn more →LTV (Loan-to-Value Ratio)
The percentage of the asset value that the lender will finance. For home loans, LTV is typically 75–90% (you pay 10–25% as down payment). For car loans, 80–90% of on-road price. Higher CIBIL scores may qualify for higher LTV.
Moratorium Period
A grace period during which you don't have to pay EMIs. Common in education loans (repayment starts 6–12 months after course completion). Interest may still accrue during moratorium, increasing the total loan cost.
Balance Transfer
Moving your existing loan from one lender to another offering a lower interest rate. Can save thousands in interest — especially if your CIBIL score has improved since you took the original loan. Some lenders charge a transfer fee of 0.5–1%.
Personal Loan
An unsecured loan (no collateral required) given based on your income, CIBIL score, and repayment capacity. Can be used for any purpose — medical, wedding, travel, debt consolidation. Interest rates range from 10.49% to 36% in India.
Learn more →Secured vs Unsecured Loan
Secured loans require collateral (home loan = property, car loan = vehicle, gold loan = gold). If you default, the lender can seize the asset. Unsecured loans (personal loans, credit cards) need no collateral but have higher interest rates.
Loan Tenure
The total duration of the loan in months or years. Personal loans: 3–60 months. Home loans: 5–30 years. Car loans: 1–7 years. Longer tenure = lower EMI but more total interest paid. Shorter tenure = higher EMI but saves on interest.
Institutions
NBFC
Non-Banking Financial Company — a company registered with RBI that provides banking services (loans, deposits) but is NOT a bank. Examples: Bajaj Finserv, Tata Capital, IIFL Finance. NBFCs often have faster approval and more flexible criteria than banks.
SEBI
Securities and Exchange Board of India — regulates the securities and capital markets in India. While SEBI doesn't directly regulate personal loans, its policies affect market conditions, mutual funds, and financial products that indirectly impact lending rates.
Eligibility
FOIR (Fixed Obligation to Income Ratio)
The percentage of your monthly income that goes toward EMIs and fixed obligations. Banks typically require FOIR below 40–50%. If your salary is ₹50,000 and existing EMIs are ₹15,000, your FOIR is 30%. Lower FOIR = higher loan eligibility.
Co-Borrower / Co-Applicant
A person who applies for a loan jointly with you. Adding a co-borrower with a good CIBIL score and income can improve approval chances and get a lower interest rate. Common in home loans where spouse is added as co-applicant.
Debt-to-Income Ratio
Total monthly debt payments divided by gross monthly income. Similar to FOIR. Banks want this below 40–50%. If your salary is ₹1 lakh and total EMIs are ₹45,000, your DTI is 45% — at the upper limit. Reducing existing debt improves loan eligibility.
RBI
Repo Rate
The interest rate at which RBI lends money to commercial banks. Currently around 6%. When RBI cuts the repo rate, banks lower their lending rates — making your EMI cheaper. When it rises, loans become more expensive.
MCLR
Marginal Cost of Funds Based Lending Rate — a benchmark rate set by each bank to determine loan interest rates. Being replaced by EBLR (External Benchmark Lending Rate) which is directly linked to repo rate for faster transmission of rate cuts.
EBLR (External Benchmark Lending Rate)
An interest rate benchmark linked directly to an external rate like RBI's repo rate. Most new loans are on EBLR, meaning when RBI cuts rates, your EMI should reduce within the next quarter. Faster and more transparent than the older MCLR system.
RBI (Reserve Bank of India)
India's central bank and top financial regulator. Sets monetary policy (repo rate), regulates banks and NBFCs, issues currency, and protects consumer interests. All legitimate lenders must be registered with RBI.
Compliance
KYC (Know Your Customer)
Identity verification process required by RBI for all financial transactions. For loans, KYC typically requires PAN card + Aadhaar + address proof. Digital KYC (Video KYC or Aadhaar-based eKYC) has made this process near-instant for online loans.
Protection
Recovery Harassment
Illegal practices by loan recovery agents including: calls before 8 AM or after 7 PM, threatening or abusive language, contacting family or employer, physical intimidation, and public shaming. All of these violate RBI guidelines. GoCredit's Loan Kavach helps you fight back.
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