Financial Glossary
Clear, simple definitions of financial terms. Understand APR, amortization, compound interest, principal, and more.
What this glossary is for
Most financial misunderstandings are vocabulary problems. "APR" and "interest rate" are used interchangeably in advertising and mean different things. "Amortisation" describes a repayment schedule, not a tax treatment. "Principal" means the amount you borrowed, but on a bond it means something else again.
Each entry here gives a plain definition, then the reason the term matters in practice. A definition alone rarely helps — knowing that APR includes fees only means something once you know that comparing an APR to a quoted rate will make the loan look worse than advertised, and that this is the point.
Entries are short by design. Follow the links from each one into the relevant guide or calculator if you need the full treatment.
How to use this glossary
- 1Look up the term exactly as it appears in the document you are reading — offers use precise words, and the precision matters.
- 2Follow the cross-links from a definition into the matching guide when you need the working detail.
- 3Use the search box above if you know the concept but not the exact term.
Common questions
What is the difference between interest rate and APR?
The interest rate is the cost of the borrowed amount alone. The APR folds in the fees and charges a lender requires, expressed as an annual rate, which is why it is usually higher. Comparing APRs is more honest than comparing quoted rates, but only when both lenders calculate it the same way.
What does amortisation mean in a loan?
It is the schedule that apportions each payment between interest and principal. Early payments are mostly interest because interest is charged on the outstanding balance, which is still large. Over the term the balance shrinks and the interest portion falls, which is why paying extra early saves more than paying extra late.
What is compound interest in simple terms?
It is interest earning interest. Simple interest is calculated only on the original amount. Compound interest is calculated on the original amount plus everything already earned, so the balance grows faster the longer it runs — and the same mechanism works against you on debt.
Financial Terms
What Is APR? Annual Percentage Rate Defined
Understand what APR means and how it differs from interest rate.
GuideWhat Is Amortization? A Clear Definition
Understand what amortization means for loans.
GuideWhat Is Compound Interest? Defined Simply
Understand what compound interest means.
GuideWhat Is Principal? Loan Principal Explained
Understand what principal means in lending.
GuideWhat Is Debt-to-Income Ratio? DTI Defined
Understand what debt-to-income ratio means.
Guide