AN adjustable rate loan is a loan where the rate of interest is linked to the prime lending rate. It is also known as floating rate loan. If you have opted for adjustable rate loan, then you stand to gain if interest rates drop. Likewise, you need to be prepared to take the risk when interest increase. Therefore, in this case the gain/loss on account of interest rate fluctuations is borne by the borrower. The rate of loan is generally revised on regular intervals.

An increase in the value of a property due to changes in market conditions, or for other reasons. The opposite of depreciation.

Anything that you own and which has a rupee value. Your assets are tallied up when the bank is trying to figure out what it can afford to lend you. You don't have to own something "free" and "clear" for it to be considered an asset. Say you have a house, on which, you own money to a bank or mortgage company. The amount you owe is considered a liability; the amount you've already paid off is an asset.

Assets that can be used to back up a loan, which you obtain with a finance company. If you fail to pay on the loan as agreed, the finance company can take these assets. Most finance companies do not loan full cost on a vehicle because it is already depreciated in value below the loan amount, and if you fail to pay and they take the vehicle in collateral they end up losing money.

The interest calculated on the principal balance as well as the accumulated interest is called compound interest. It is usually higher than simple interest.

A decline in the value of property or asset over time.

This is balance arrived at after deducting the amount already paid towards the principal and is used to calculate interest. Interest calculated at reducing balance decreases with the decrease in the outstanding principal component and vice-versa.

The person who promised to pay a debt or perform an obligation contracted by another if the original party fails to pay or perform according to a contract.

A hypothecation is an equitable charge on the goods without possession, but not amounting to a mortgage. The contract is done to secure a debt. Banks that give you a loan to purchase any asset hypothecate the asset in their name as security.

This ration signifies the percentage of the income that can be set aside for repayment of the loan under the assumption that 50-60 per cent of the income is required by the person for his own sustenance.

A lender's claim on assets offered as security for a loan. Lien may be possessory, i.e., enforceable irrespective of the possession of the creditor.

A clause in the hire-purchase agreement imposing a liability on the hirer to make a payment over and above the arrears of hire-rent, in the event of the agreement or the hiring being terminated before the propriety in the goods has been passed to the hirer. The payment may be expressed to be for depreciation of goods or by way or liquidated damages or compensation for loss of profit.

A privilege in a loan which permits the borrower to make payments in advance of their due date.

Money charged for an early repayment of debt. Prepayment penalties are levied by many players, while some allow you to prepay without any penalty. The penalty is usually calculated as a percentage of the outstanding principal.