Glossary Letter: P

The principal amount is the original sum of money borrowed in a loan, excluding interest and other charges. It represents the core balance that the borrower must repay over the loan term. As the borrower makes payments, a portion goes toward reducing the principal, while the rest covers interest and fees.  A loan management software… Continue reading Principal Amount

A personal guarantee is a commitment made by an individual to repay a loan or debt if the primary borrower defaults. Lenders often require personal guarantees when issuing loans to businesses or individuals with less established credit. By signing a personal guarantee, the guarantor agrees to be personally liable for the debt, which can include… Continue reading Personal Guarantee

Peer-to-peer (P2P) lending is a method of financing where individuals can borrow and lend money directly to each other through online platforms, bypassing traditional financial institutions. P2P lending offers borrowers access to funds, often at competitive rates, and provides lenders with potential investment returns.  P2P lending platforms handle repayment processes by offering an alternative to… Continue reading Peer-to-Peer (P2P) Lending

Private Mortgage Insurance (PMI) is a type of insurance that homebuyers might be required to purchase if they are unable to make a down payment of at least 20% of the home’s purchase price. PMI protects the lender, not the borrower, in case the borrower defaults on the loan. Lenders typically require PMI for conventional… Continue reading Private Mortgage Insurance (PMI)

A prepayment penalty is a fee a lender charges when a borrower pays off a loan earlier than the agreed-upon term. This penalty is designed to compensate the lender for the loss of interest payments they would have earned had the loan been paid off according to the original schedule. The fee can be a… Continue reading Prepayment Penalty

A prorated payment in lending refers to a partial loan payment calculated based on the number of days in a given period. This method ensures borrowers pay interest only for the exact time they’ve used the funds. Prorated payments are common when loan disbursement or repayment doesn’t align with standard payment cycles. For instance, if… Continue reading Prorated Payment

A periodic statement is a regular summary provided by financial institutions detailing the transactions and activities within a specific account over a set period. This statement includes information such as account balances, deposits, withdrawals, fees, interest earned, and any other relevant transactions. Credit card statements also show the minimum payment due, applicable interest charges, and… Continue reading Periodic Statement

A Promissory Note is a financial instrument that contains a written promise by one party (the issuer or maker) to pay a definite sum of money to another party (the payee or holder) either on demand or at a specified future date. It is a legally binding document that outlines the terms of the loan,… Continue reading Promissory Note