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Brex Learning Center

Glossary

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Promissory Note

A promissory note is a financial instrument containing a written promise by one party to pay a debt to another party. This is an unconditional promise for a certain sum of money, which the promissory note issuer may pay on demand or at a fixed or specified date in the future. The note usually contains the terms of the debt, such as the maturity rate, principal amount, and interest rate, as well as the issuer's signature and the date and place of the note's issuance. Any individual or company can become a lender upon issuing a promissory note.

Principal Balance

The principal balance refers to the outstanding balance that is due on a loan, excluding any interest or fees. For example, if a borrower took out a $10,000 personal loan, then the principal balance would be $10,000. If they paid off $6,000, then the principal balance would then be $4,000.

Prepayment Penalty

A prepayment penalty is a charge against a borrower for repaying a loan before it is due. Lenders use these charges to discourage early payment on loans, as this deprives the lender of future interest income. In the case of the sale of a property and a refinancing transaction, the borrower incurs a hard prepayment penalty. If the borrower refinances only, they incur a soft prepayment penalty. The lender may calculate the penalty as several month's worth of interest or as a percentage of the remaining mortgage balance.

Prepayment

Prepayment refers to the settling of debt before payment becomes due. A customer may prepay charges on their credit card before they receive a statement or refinance to clear loans early. Some lenders charge penalties for prepayment on certain loans, such as mortgages. This tends only to apply when a borrower pays off the entire balance early and not when they make extra intermittent principal payments. Borrowers must be aware of such charges and agree to them during the loan application process

Point of Sale (POS)

The point of sale (POS) is a location at which a customer makes a transaction for goods or services. This may be a physical merchant's establishment where a POS terminal or system allows the customer to process the transfer of funds, or it may be a virtual sales point which a customer accesses via their computer or mobile device.

Phishing

Phishing is the act of deceiving online users with websites, emails or text messages that appear to be from a legitimate firm in an attempt to fraudulently acquire their sensitive details or financial information. This method of identity fraud involves the creation of an official-looking website where visitors may unwittingly submit details such as their credit card information, social security number, or login ID and password. Phishing can also involve sending emails or texts that may install ransomware programs on the victim's device, allowing the scammer to access their network or computer. Once a scammer has obtained the victim's information, they can use it to steal funds, assume their identity, or sell the details on to other criminal parties.

Periodic Statement

A periodic statement is a written record by a financial institution summarizing all transactions on an account, including payments, purchases, fees, and any finance charges incurred. The account holder receives the statements at regular, specified intervals — usually monthly, but at least four times a year. Financial institutions may mail the statements to customers or allow them to access electronic versions online.

Periodic Rate

A periodic rate refers to an interest rate that a creditor imposes on a balance for the subdivision of a year, such as a day, week, or month. Creditors tend to quote interest rates on an annual basis. As the interest compounds more frequently than this, the creditor may divide the annual interest rate by the number of compounding periods to charge the cost of credit over a specific amount of time.

Payoff

Payoff refers to the complete repayment of a loan, including the principal, interest, and any other amounts that are due. A lender prepares a payoff statement, which provides the customer with a quote for prepayment. Also known as a letter of demand, this statement contains the loan amount, the payment made towards the loan, the amount of balance due to close the loan, and the interest rate. Lenders usually prepare these statements for mortgages, but customers can request payoff statements for other loan types.

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