What is Predatory Lending?
Unscrupulous actions carried out by a lender to entice, induce, and/or assist a borrower in taking a mortgage that carries high fees, a high interest rate, strips the borrower of equity, or places the borrower in a lower credit rated loan to the benefit of the lender. As with most things of a dishonest nature, new and different predatory lending schemes frequently arise. Read more for examples and further explanation including related video clips and also comments
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Tag: Lending
Undercapitalization definition explanation
What is Undercapitalization?
When a company does not have sufficient capital to conduct normal business operations and pay creditors. This can occur when the company is not generating enough cash flow or is unable to access forms of financing such as debt or equity. If a company can’t generate capital over time, it increases its chance of going bankrupt as it loses the ability to service its debts. Undercapitalized companies also tend to choose high-cost sources of capital, such as short-term credit, over lower-cost forms such as equity or long-term debt. Read more for examples and further explanation including related video clips and also comments
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Flow Of Funds – FOF definition explanation
What is Flow Of Funds – FOF?
A set of accounts that is used to follow the flow of money within various sectors of an economy. Specifically, the account analyzes economic data on borrowing, lending and investment throughout sectors like households, businesses and farms. Read more for examples and further explanation including related video clips and also comments
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Yield Curve definition explanation
What is Yield Curve?
A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity dates. The most frequently reported yield curve compares the three-month, two-year, five-year and 30-year U.S. Treasury debt. This yield curve is used as a benchmark for other debt in the market, such as mortgage rates or bank lending rates. The curve is also used to predict changes in economic output and growth. Read more for examples and further explanation including related video clips and also comments
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Accrued Interest definition explanation
What is Accrued Interest?
1. A term used to describe an accrual accounting method when interest that is either payable or receivable has been recognized, but not yet paid or received. Accrued interest occurs as a result of the difference in timing of cash flows and the measurement of these cash flows.
2. The interest that has accumulated on a bond since the last interest payment up to, but not including, the settlement date. Read more for examples and further explanation including related video clips and also comments
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Precision Score definition explanation
What is Precision Score?
A number used by the TransUnion Credit Bureau to quantify the credit worthiness of borrowers. Precision scores used to be called Empirica scores before TransUnion started using the NextGen scoring model. These scores will determine how risky it is for a lending institution to lend money to borrowers.
Don’t be fooled by the name though, there are many companies that use this score but call it something else. They include:
– Experian, who uses the term “”FICO Advanced Risk Score””.
– TransUnion, who uses the term “”Precision””.
– Equifax, who uses the term “”Pinnacle””. Read more for examples and further explanation including related video clips and also comments
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Loan Commitment definition explanation
What is Loan Commitment?
A loan amount that may be drawn down, or is due to be contractually funded in the future. Loan commitments are found at commercial banks and other lending institutions and consist of both open-end and closed-end loans. Open-end loan commitments act like revolving credit lines, whereby if a portion of the loan is paid off, the principle repayment amount is added back to the allowable loan limit. Closed-end loans are reduced once any repayments are made.
Banks and investment shops must account for the value of outstanding loan commitments so that funds are available should the borrower request them. They represent a future obligation in full, even though a percentage of the notional loan amounts will never be utilized by the borrowers themselves.
Also known as “”unfunded loan commitments,”” because the total capital outlay is not provided by the lender up front. Read more for examples and further explanation including related video clips and also comments
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Debt-To-Income Ratio – DTI definition explanation
What is Debt-To-Income Ratio – DTI?
A personal-finance measure that compares an individual’s debt payments to the income he or she generates. This measure is important in the lending industry as it gives lenders an idea of how likely they will receive payments from the borrower. Read more for examples and further explanation including related video clips and also comments
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Bad Debt Reserve definition explanation
What is Bad Debt Reserve?
An account set aside by a company to account for and offset losses that arise as a result of defaults from futures loans. This figure may be calculated based on historical norms or other known information about the relative safety of the debt.
Also known as a “”loss reserve””. Read more for examples and further explanation including related video clips and also comments
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Staple Financing definition explanation
What is Staple Financing?
A pre-arranged financing package offered to potential bidders in an acquisition. Staple financing is arranged by the investment bank advising the selling company and includes all details of the lending package, including the principal, fees and loan covenants. The name is derived from the fact that the financing details are stapled to the back of the acquisition term sheet. Read more for examples and further explanation including related video clips and also comments
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