What is a Guaranteed Loan? A guaranteed loan is a loan that a third party guarantees – or assumes the debt obligation for – in the event that the borrower defaults. Sometimes, a guaranteed loan is guaranteed by a government agency, which will purchase the debt from the lending financial institution and take on [...]
What Is the Total Debt Service Ratio (TDS)? The total debt service ratio (TDS) is a debt service measurement that financial lenders use as a rule of thumb when determining the proportion of gross income that is already spent on housing-related and other similar payments. Lenders consider each potential borrower’s [...]
What Is a Variable Interest Rate? A variable interest rate (sometimes called an “adjustable” or a “floating” rate) is an interest rate on a loan or security that fluctuates over time because it is based on an underlying benchmark interest rate or index that changes periodically. The obvious advantage of [...]
What Is a Senior Bank Loan? A senior bank loan is a debt financing obligation issued to a company or an individual by a bank or similar financial institution that holds legal claim to the borrower's assets above all other debt obligations. Because it is considered senior to all other [...]
What Is a Loan Commitment? A loan commitment is an agreement by a commercial bank or other financial institution to lend a business or individual a specified sum of money. The loan can take the form of a single lump sum or – in the case of an open-end loan [...]
What Is a Term Loan? A term loan is a loan from a bank for a specific amount that has a specified repayment schedule and either a fixed or floating interest rate. A term loan is often appropriate for an established small business with sound financial statements. Also, a term [...]
What Is a Fixed-Rate Payment? A fixed-rate payment is an installment loan with an interest rate that cannot vary during the life of the loan. The payment amount also will remain the same, though the proportion that goes to interest and principal may vary. A fixed-rate payment is sometimes referred [...]
What Is a Periodic Interest Rate? A periodic interest rate is a rate than can be charged on a loan, or realized on an investment over a specific period of time. Lenders typically quote interest rates on an annual basis, but the interest compounds more frequently than annually in most [...]
What Is a Credit Facility? A credit facility is a type of loan made in a business or corporate finance context. It allows the borrowing business to take out money over an extended period of time rather than reapplying for a loan each time it needs money. In effect, a [...]
What Is the Default Rate? The default rate is the percentage of all outstanding loans that a lender has written off after a prolonged period of missed payments. A loan is typically declared in default if payment is 270 days late. Defaulted loans are typically written off from an issuer’s [...]