Acceleration clauses come into play when a lender wants to force a sale of collateral to pay back their debts. This is also called foreclosure, where someone who owes money can lose what they own because they cannot pay back what has been borrowed. Although this sounds like something that only happens in movies or television shows about lawyers and judges, foreclosure actually happens quite often, especially with people who have taken out large amounts of credit but cannot afford the interest payments each month
The term amortization refers to the process of paying off a loan over time. When you get a mortgage, for example, you make monthly payments that include both principal and interest. This means that your payment is lower in the beginning and higher toward the end when there's more interest because less principal has been paid off.
The annual percentage rate (APR) is the interest rate quoted to you on a loan or credit card. It includes any fees, but it doesn't factor in compounding. The annual percentage yield (APY) accounts for both your interest rate and compounding and represents what you'll actually earn each year if you leave your money invested with the bank or institution.
Categories:
Finance