Your Complete A-Z Loan Dictionary
Navigating the world of loans and lending can be overwhelming, especially when bank officials, loan documents, and financial websites throw around terms you have never encountered before. Whether you are applying for a home loan, considering a personal loan, or simply trying to understand your loan agreement better, this glossary covers every term you are likely to encounter.
We have compiled over 100 financial and lending terms, explained in plain English with practical context so you know exactly what each term means for your borrowing decisions. Bookmark this page — you will find yourself returning to it throughout your loan journey.
A
Accrued Interest Interest that has accumulated on a loan but has not yet been paid. For example, if your EMI is due on the 5th but you check your account on the 3rd, the interest calculated for those 3 days since the last payment is accrued interest.
Adjustable Rate An interest rate that changes periodically based on a benchmark rate. In India, most home loans carry adjustable (floating) rates linked to the repo rate through EBLR. See also: Floating Rate.
Amortization The process of paying off a loan through regular instalments (EMIs) that include both principal and interest. In the early years of a home loan, a larger portion of your EMI goes toward interest. Over time, the principal component increases. This schedule is called the amortization schedule.
Annual Percentage Rate (APR) The total annual cost of a loan expressed as a percentage, including interest rate, processing fees, and other charges. APR gives a more complete picture of borrowing cost than the interest rate alone.
Appraisal A professional assessment of a property’s market value. Banks require property appraisals before sanctioning home loans or loans against property to ensure the asset adequately covers the loan amount.
Arrears Overdue or unpaid loan payments. Falling into arrears negatively impacts your CIBIL score and may attract penalty charges from the lender.
B
Balance Transfer The process of transferring an existing loan from one lender to another, typically to benefit from a lower interest rate. Balance transfer is common for home loans and can save significant interest over the remaining tenure. Use our balance transfer calculator to estimate savings.
Balloon Payment A large, lump-sum payment due at the end of a loan term. Unlike standard EMI-based repayment, some loan structures require smaller periodic payments with a large final payment. This is rare in Indian retail lending.
Base Rate The minimum lending rate below which banks cannot lend. The base rate system was introduced by the RBI in 2010 and was later replaced by MCLR in 2016, and subsequently by EBLR in 2019. Older loans may still be linked to the base rate.
Benchmark Rate A reference rate used to determine loan interest rates. In India, the RBI’s repo rate serves as the external benchmark for most bank loans. See our repo rate guide for details.
Borrower The individual or entity that receives a loan and is legally obligated to repay the principal plus interest according to the agreed terms.
Bounce Charges Penalty fees imposed when an EMI payment bounces due to insufficient funds in the borrower’s bank account. Typically Rs 300-750 per bounce, plus the negative impact on your credit score.
Bridging Loan A short-term loan used to bridge the gap between buying a new property and selling an existing one. The borrower repays the loan once the sale of the old property is completed.
C
CIBIL Score A three-digit credit score (300-900) maintained by TransUnion CIBIL, India’s oldest credit bureau. Banks use CIBIL scores to evaluate loan applications. A score of 750+ is generally considered excellent. Learn more in our CIBIL score guide.
Collateral An asset pledged by the borrower to secure a loan. If the borrower defaults, the lender can seize and sell the collateral to recover the loan amount. Property serves as collateral for home loans, while gold serves as collateral for gold loans.
Co-applicant A person who applies for a loan jointly with the primary borrower. Co-applicants share the repayment liability and their income is considered when determining eligibility. Spouse or close family members commonly serve as co-applicants for home loans.
Co-signer Similar to a guarantor, a co-signer agrees to repay the loan if the primary borrower defaults. Unlike a co-applicant, a co-signer may not have direct benefit from the loan proceeds.
Credit Bureau An organization that collects and maintains credit information about borrowers. India has four credit bureaus: TransUnion CIBIL, Experian, Equifax, and CRIF High Mark. Learn about all four in our credit bureaus guide.
Credit History A detailed record of a borrower’s past credit behaviour, including loan repayments, credit card usage, defaults, and inquiries. A strong credit history leads to better loan terms. Read about how credit scores affect loans.
Credit Report A comprehensive document containing your credit history, active loans, credit inquiries, and credit score. You are entitled to one free credit report per year from each bureau. Learn how to check your free score.
Credit Utilization Ratio The percentage of available credit that you are currently using. For credit cards, keeping utilization below 30% is recommended for maintaining a healthy credit score. This ratio also affects loan eligibility.
D
Delinquency Failure to make loan payments on time. Delinquency is recorded on your credit report and progressively damages your CIBIL score. Accounts 90+ days delinquent are classified as Non-Performing Assets (NPAs).
Default The failure to repay a loan according to the agreed terms. Default is more severe than delinquency and can lead to legal action, asset seizure, and severe credit score damage.
Demand Promissory Note A legal document signed by the borrower promising to repay the loan amount on demand. Banks typically require borrowers to sign this document as part of the loan agreement.
Disbursement The release of loan funds to the borrower or the designated payee (such as a property seller or educational institution). Home loans are often disbursed in stages based on construction progress.
Down Payment The upfront payment made by the borrower toward the purchase price of an asset. For home loans, the down payment is the difference between the property value and the loan amount. RBI mandates a minimum down payment of 10-25% depending on the loan amount and LTV ratio.
Due Diligence The process of thorough investigation and verification conducted by the lender before approving a loan. This includes credit checks, income verification, property valuation, and legal verification of documents.
E
EBLR (External Benchmark Lending Rate) The lending rate system mandated by the RBI from October 2019, where bank loan rates are directly linked to an external benchmark — typically the RBI’s repo rate. EBLR ensures faster and more transparent transmission of rate changes to borrowers compared to the older MCLR system. Learn more in our MCLR guide.
Eligibility The maximum loan amount a borrower qualifies for based on income, existing obligations, credit score, age, and the lender’s internal policies. Use our eligibility calculator to get an estimate.
EMI (Equated Monthly Instalment) A fixed monthly payment made by the borrower to repay the loan. Each EMI comprises both principal repayment and interest. The EMI amount remains constant for fixed-rate loans but may change for floating-rate loans when the benchmark rate moves. Calculate your EMI using our EMI calculator.
Encumbrance A claim, lien, or legal liability attached to a property. Before sanctioning a home loan, banks check the encumbrance certificate to ensure the property is free from legal disputes, outstanding mortgages, or government claims.
Encumbrance Certificate (EC) A legal document obtained from the sub-registrar’s office that certifies a property is free from any monetary or legal liabilities. Banks mandatorily require an EC for home loan processing.
Equitable Mortgage A type of mortgage created by depositing the title deeds of a property with the lender as security for the loan. This is the most common form of mortgage for home loans in India and does not require registration in most states.
Escrow Account A third-party account where funds are held until specific conditions are met. In real estate transactions, an escrow account may hold the buyer’s funds until all conditions of the sale are satisfied.
F
Fixed Deposit Linked Loan A loan taken against a fixed deposit held with the same bank. These loans typically carry interest rates 1-2% above the FD rate and do not affect the borrower’s credit score since the FD serves as collateral.
Fixed Rate An interest rate that remains constant throughout the loan tenure or a specified initial period. Fixed rate loans provide EMI predictability but are typically 1-2% higher than floating rates. See our detailed floating vs fixed rate comparison.
Floating Rate An interest rate that varies based on changes in the benchmark rate. Most loans in India, especially home loans, carry floating rates linked to the EBLR. When the repo rate changes, your loan rate adjusts accordingly.
FOIR (Fixed Obligation to Income Ratio) The percentage of a borrower’s gross monthly income that goes toward existing EMIs and fixed obligations. Banks use FOIR to assess repayment capacity. A FOIR below 50-55% is generally acceptable. Learn how to calculate it in our FOIR guide.
Foreclosure Paying off the entire outstanding loan amount before the scheduled tenure ends. For floating rate home loans, RBI mandates that banks cannot charge any foreclosure penalty. Also referred to as prepayment.
Fraud Alert A notice placed on your credit file that warns lenders to take extra precautions to verify your identity before granting credit. Useful if you suspect identity theft.
G
Grace Period A period after the EMI due date during which the borrower can make payment without incurring a late fee. Not all lenders offer grace periods, and the length varies.
Gross Income Total income before any deductions such as taxes, provident fund contributions, or insurance premiums. Banks use gross income to calculate loan eligibility.
Guarantor A third party who guarantees loan repayment if the primary borrower defaults. Banks may require a guarantor for borrowers with lower credit scores or insufficient income to independently qualify for the loan amount.
H
Hard Inquiry A credit check initiated when you formally apply for a loan or credit card. Hard inquiries are recorded on your credit report and can temporarily lower your CIBIL score by 5-10 points. Multiple hard inquiries in a short period signal credit hunger to lenders.
Home Loan A secured loan specifically for purchasing, constructing, or renovating a residential property. The property being purchased typically serves as collateral. Read our comprehensive home loan guide.
Hypothecation A form of charge where the borrower pledges a movable asset (such as a car) as security without transferring possession. In a car loan, the vehicle is hypothecated to the bank, meaning the bank has a charge on the vehicle until the loan is fully repaid.
I
Income Tax Return (ITR) A form filed with the Income Tax Department declaring income earned and taxes paid. Banks require 2-3 years of ITR from self-employed borrowers as proof of income stability. Salaried borrowers may also be asked for ITR.
Insurance (Loan Protection) Optional or sometimes mandatory insurance that covers the outstanding loan amount in case of the borrower’s death, disability, or job loss. While banks cannot force borrowers to buy insurance from a specific provider, they may require proof of adequate coverage for large loans.
Interest Rate The percentage charged by the lender on the outstanding loan amount, expressed as an annual rate. Interest rates can be fixed or floating and vary based on the borrower’s credit profile, loan type, and market conditions.
Interest Subvention A subsidy scheme where the government or a third party pays a portion of the interest on a loan. PMAY provides interest subvention of up to 6.5% for eligible home buyers.
J
Joint Loan A loan taken by two or more individuals together, with all parties sharing the repayment liability. Joint home loans are common between spouses and can increase eligibility and provide tax benefits to both borrowers.
K
KYC (Know Your Customer) Mandatory identity and address verification process required by RBI for all banking and lending transactions. KYC documents typically include Aadhaar card, PAN card, and proof of address.
L
Lien A legal right or claim by a lender on a borrower’s asset until the debt is fully repaid. If you take a loan against your fixed deposit, the bank places a lien on the FD.
Loan Agreement A legally binding contract between the borrower and lender that outlines all terms and conditions of the loan, including the interest rate, tenure, EMI amount, prepayment terms, and default consequences.
Loan Restructuring The process of modifying existing loan terms — such as extending the tenure, reducing the EMI, or providing a moratorium — to help borrowers facing temporary financial difficulties. Banks offered wide-scale restructuring during the COVID-19 pandemic.
Loan Sanction Formal approval of a loan application by the lender. The sanction letter specifies the approved loan amount, interest rate, tenure, processing fees, and other conditions. Sanction does not guarantee disbursement — the borrower must still sign the agreement and fulfil all conditions.
Loan-to-Value Ratio (LTV) The percentage of the property’s value that the bank is willing to finance. For home loans up to Rs 30 lakh, LTV can be up to 90%. For loans above Rs 75 lakh, LTV is typically capped at 75%. Read our detailed LTV ratio guide.
M
Margin The borrower’s own contribution toward the total cost of the asset being financed. If the LTV ratio is 80%, the margin (down payment) required from the borrower is 20%.
Maturity Date The date on which the final loan instalment is due and the loan is fully repaid. For a 20-year home loan starting in January 2025, the maturity date would be January 2045.
MCLR (Marginal Cost of Funds Based Lending Rate) A lending rate benchmark introduced by the RBI in April 2016, replacing the base rate system. MCLR is internally determined by each bank based on its cost of funds. While new loans are now linked to EBLR, many older loans remain on the MCLR system.
Moratorium Period A grace period during which the borrower is not required to make EMI payments. This is common in education loans, where repayment starts after the course period plus 6-12 months. Moratorium was also offered to all borrowers during the COVID-19 crisis.
Mortgage A legal arrangement where a borrower pledges a property as security for a loan. The property remains with the borrower, but the lender holds a charge on it until the loan is repaid. Home loans are the most common form of mortgage in India.
Mortgage Deed A legal document that creates the mortgage charge on a property in favour of the lender. It is registered with the local sub-registrar and details the loan terms, property description, and conditions for release of the mortgage.
N
Net Income Income remaining after all mandatory deductions including income tax, PF, and professional tax. Some lenders use net income for eligibility calculation, while others use gross income.
NOC (No Objection Certificate) A document issued by the lender after full loan repayment, certifying that the borrower has no outstanding obligations. The NOC is essential for removing the mortgage lien from the property records and obtaining clear title.
Non-Performing Asset (NPA) A loan account where the borrower has failed to make payments for 90 days or more. NPA classification triggers provisioning requirements for the bank and severely damages the borrower’s credit history.
Non-Recourse Loan A loan where the lender’s recovery is limited to the collateral only. If the borrower defaults, the lender cannot pursue the borrower’s other assets. Most Indian home loans are recourse loans, meaning the bank can pursue all assets.
O
Outstanding Balance The total amount of loan principal and accrued interest that remains unpaid at any given point in time.
Overdraft A credit facility that allows the borrower to withdraw more than the account balance, up to a sanctioned limit. SBI’s MaxGain home loan operates as an overdraft facility linked to the home loan account. See our SBI review for details.
Overdue Any EMI or payment that has crossed its due date without being paid. Even a single day overdue is reported to credit bureaus and can affect your score.
P
PAN (Permanent Account Number) A unique 10-character alphanumeric identifier issued by the Income Tax Department. PAN is mandatory for all loan applications above Rs 50,000 and for all financial transactions above specified thresholds.
Pari Passu Charge A charge where multiple lenders share equal rights over the same collateral. This arrangement is common in consortium lending for large business loans.
Penal Interest Additional interest charged by the lender on overdue EMI payments. RBI guidelines effective from 2024 mandate that penal charges be levied as reasonable penalties rather than as additional interest.
Personal Loan An unsecured loan granted based on the borrower’s income, credit history, and employment profile without requiring collateral. Personal loans typically carry higher interest rates than secured loans. Read our personal loan guide.
PMAY (Pradhan Mantri Awas Yojana) A government scheme providing interest subsidies on home loans for first-time buyers from economically weaker sections, low-income groups, and middle-income groups. Learn about eligibility in our PMAY guide.
Pre-Approved Loan A loan offer extended by a bank to existing customers based on their account activity, income, and credit history. Pre-approved loans typically come with faster processing, reduced documentation, and sometimes preferential rates.
Pre-EMI Interest Interest charged on the disbursed loan amount before the full loan is released (common in under-construction property loans). During the pre-EMI period, the borrower pays only the interest portion, not the full EMI.
Prepayment Paying off a portion of the outstanding loan amount ahead of schedule, over and above the regular EMI. RBI mandates that banks cannot charge prepayment penalties on floating rate home loans. Use our prepayment calculator to see the impact.
Principal The original loan amount borrowed, excluding interest and fees. Your EMI comprises both principal repayment and interest payment. As the loan matures, the principal component of each EMI increases.
Processing Fee A one-time fee charged by the lender for processing the loan application. Processing fees typically range from 0.25% to 2% of the loan amount, depending on the lender and product type.
Provident Fund (PF) A retirement savings scheme where both employer and employee contribute monthly. Some lenders accept PF balance as additional evidence of financial stability. Withdrawals from PF may be permitted for home purchase.
R
Rescheduling Revision of the repayment schedule for an existing loan, typically by extending the tenure or adjusting the EMI amount. Rescheduling helps borrowers facing temporary cash flow difficulties.
Repo Rate The rate at which the RBI lends money to commercial banks. Since October 2019, most bank loan rates are directly linked to the repo rate through the EBLR system. When the RBI raises the repo rate, your floating rate EMI increases. Read our repo rate guide.
Reverse Repo Rate The rate at which the RBI borrows money from commercial banks. It is typically lower than the repo rate and influences the liquidity in the banking system.
Reverse Mortgage A loan product for senior citizens (60+) that allows them to receive regular payments from the bank against the mortgage of their residential property. The property is transferred to the bank after the borrower’s death (or the surviving spouse’s death), unless the heirs choose to repay the loan.
S
Sanction Letter A formal document from the lender confirming loan approval, specifying the loan amount, interest rate, tenure, processing fee, and all applicable terms and conditions. The borrower must accept the sanction letter before disbursement proceeds.
SARFAESI Act The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002. This law allows banks and financial institutions to auction a defaulting borrower’s property to recover the outstanding loan without court intervention. It applies to secured loans above Rs 1 lakh.
Secured Loan A loan backed by collateral — an asset pledged by the borrower. Home loans, car loans, gold loans, and loans against property are all secured loans. Secured loans carry lower interest rates than unsecured loans because the lender has an asset to recover in case of default.
Securitization The process of pooling various types of loans (such as home loans or car loans) and selling them as packaged securities to investors. This allows banks to free up capital for further lending.
Self-Occupied Property A property that the borrower lives in, as opposed to a property rented out or kept vacant. Tax benefits on home loan interest differ based on whether the property is self-occupied or let out.
Simple Interest Interest calculated only on the original principal amount, not on accumulated interest. Most Indian loans use reducing balance (compound) interest, not simple interest.
Soft Inquiry A credit check that does not affect your CIBIL score. Examples include checking your own credit report, employer background checks, and pre-qualification checks by lenders. Unlike hard inquiries, soft inquiries are not visible to other lenders.
Stamp Duty A tax levied by state governments on property transactions and loan agreements. Stamp duty rates vary by state and typically range from 3% to 8% of the property value. Check rates for your state in our state guides.
Standing Instruction A pre-authorised instruction given by the borrower to their bank to automatically deduct the EMI amount from their account on the due date each month. Also referred to as auto-debit or ECS mandate.
Subvention Scheme An arrangement where a builder or developer pays the pre-EMI interest or a portion of the EMI on behalf of the home buyer for a specified period (typically until possession). Buyers should carefully evaluate the effective cost, as the interest may be built into the property price.
T
Takeover See Balance Transfer. The term is commonly used when a new lender takes over an existing loan from another institution.
Tenure The total duration of the loan from disbursement to the final EMI payment. Home loan tenures in India can extend up to 30 years, while personal loan tenures typically range from 1 to 5 years. Longer tenures reduce EMI amounts but increase total interest paid.
Title Deed A legal document that proves ownership of a property. Banks require original title deeds as part of the home loan documentation and retain them until the loan is fully repaid.
Title Insurance Insurance that protects the lender and/or borrower against financial loss due to defects in the property title. While not mandatory in India, title insurance is becoming increasingly common for high-value property transactions.
Top-up Loan An additional loan availed on top of an existing home loan or loan against property. Top-up loans are available to borrowers with a good repayment track record and can be used for any purpose, including renovation, education, or personal needs.
Total Interest Cost The total amount of interest paid over the entire loan tenure. For a Rs 50 lakh home loan at 8.50% for 20 years, the total interest cost would be approximately Rs 55 lakh — meaning you pay more than the principal in interest. Use our EMI calculator to compute this.
U
Unsecured Loan A loan granted without any collateral. Personal loans and credit cards are common unsecured credit products. Due to higher risk for the lender, unsecured loans carry higher interest rates than secured loans.
Underwriting The process by which a lender evaluates the risk of lending to a specific borrower. Underwriters assess income stability, credit history, collateral value, and overall repayment capacity before approving or rejecting a loan application.
V
Valuation A professional assessment of a property’s market value conducted by an empanelled valuer. Banks require property valuation before sanctioning home loans to determine the maximum loan amount based on LTV ratio.
Variable Rate See Floating Rate. A variable rate changes based on movements in the benchmark rate.
W
Waiver The voluntary relinquishment of a right or charge by the lender. Banks sometimes waive processing fees or prepayment charges as part of promotional offers or for premium customers.
Working Capital Loan A short-term loan used by businesses to finance day-to-day operations, including inventory purchase, payroll, and rent. This is different from a term loan used for capital expenditure. Visit our business loan guide for details.
Y
Yield The return earned by the lender on the loan. From the borrower’s perspective, the yield represents the true cost of borrowing, factoring in interest, fees, and other charges.
Z
Zero-Balance Transfer A balance transfer offer where the new lender waives the processing fee or other charges associated with transferring the loan. These offers are promotional and typically available for a limited period.
Zero Foreclosure Charge A policy where the lender does not charge any fee for closing the loan before the scheduled tenure. RBI mandates zero foreclosure charges on all floating rate loans, including home loans, from all banks and NBFCs.
Why Understanding Loan Terminology Matters
Knowing what these terms mean is not just academic — it directly affects your financial decisions. When a bank quotes you an interest rate of “8.50% linked to EBLR,” understanding what EBLR means tells you that your rate will move with the repo rate. When your sanction letter mentions an LTV ratio of 75%, you know that you need to arrange 25% of the property value as a down payment.
Financial literacy is particularly important in India, where most borrowers rely heavily on bank relationship managers for guidance. Understanding these terms empowers you to ask the right questions, compare lenders effectively, and avoid costly mistakes.
If you are starting your loan journey, we recommend reading our guides on how CIBIL scores affect loan eligibility, the difference between floating and fixed rates, and our comprehensive home loan guide to build a solid foundation of financial knowledge.
Sources
- Reserve Bank of India — rbi.org.in — Lending rate guidelines, EBLR framework, and consumer protection regulations
- TransUnion CIBIL — cibil.com — Credit scoring methodology and credit report terminology
- National Housing Bank — nhb.org.in — Housing finance regulatory framework and LTV norms
- PMAY Official Portal — pmaymis.gov.in — Subsidy scheme details and terminology
- Indian Banks’ Association — iba.org.in — Banking practice standards and lending terminology
- SARFAESI Act, 2002 — Government of India — Legal framework for secured asset enforcement