NDSU Extension Service - Ramsey County

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The Language of Financial Management

The Language of Financial Management

 

            It is often said that teen-agers have their own language. The same can be said of other segments of life – terms used to describe a specific skill or activity such as “googling” a name on the Internet has a unique definition.  The language of money management also includes some unusual terms.  A few and their definitions follow.

 

            Annual percentage rate (APR). A yearly rate of interest based on average compound interest and including fees and other costs paid to get credit. It is calculated in a standard way and must be disclosed by lenders so that borrowers can compare rates.

            Average daily balance. A method used to determine finance charges. It’s calculated by adding together the outstanding balance on each day in the billing period, then dividing that total by the number of days in the billing period. The calculation includes new purchases and payments.

            Balance transfer. The process of moving an unpaid credit card debt from one issuer to another. Card issuers sometimes offer teaser rates to encourage balance transfers to come in and charge balance-transfer fees to discourage them from going out.

            Default. Failure to meet financial obligations. People who don’t make payments on a loan have “defaulted” on that agreement.

            Equity. The value of property beyond the total amount owed on it.

            Firewall. A system designed to prevent unauthorized access to or from a private computer network. Firewalls can be implemented in both hardware and software, or a combination of both. Firewalls are frequently used to prevent unauthorized Internet users from accessing private networks connected to the Internet.

            Grace period. The interest-free time a credit card issuer allows between the transaction date and the billing date. The standard grace period is usually between 20 and 30 days. People who carry a balance on their credit cards have no grace period.

            Pharming. A tactic by which criminals “hijack” whole domains to their own sites and gather the personal and financial data of users who believe they’re communicating through their customary service provider. Pharming focuses on particular web domains that are frequented by mass amounts of accountholders and is rapidly becoming the most advanced and undetectable scam technique to date.

            Pretexting. Pretexting is the practice of obtaining your personal information under false pretenses. Pretexters sell your information to people who may use it to get credit in your name, steal your assets, or investigate or sue you. Pretexting is against the law. Pretexting is usually done over the phone, where the caller poses as a legitimate agency in an attempt to get your personal information and account numbers.

            Variable (adjustable) interest rate. An interest rate that can change. How often it changes depends upon the terms of the credit and should be stated in the documents the creditor provides.

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