What do these common financial terms mean?

From interest rates to underwriting, everything you need to know about commonly used terms in finance.

Interest rate: the percentage lenders charge based on the principal amount - the book value of the loan. Interest rate is often noted on an annual basis. 

Maturity/term: maturity date refers to the date that the principal is paid in full to the lender. The term of a loan refers to the length of time that borrowers take to pay back the loan, i.e from disbursement date to maturity date. The term may include a grace period, during which the borrower doesn't have to make repayments.

Repayment: the amount that the borrower pays back to the lender, which includes interest and principal. 

Fees: the amount that the lender charges the borrower besides interest to service the loan, which can be a legal fee, admin fee, etc.

Warrants: security that gives the holder the right (but not the obligation) to purchase the company equity at a specified price within a specific period of time.

Straight-line Amortization: Straight-line amortized loans have equal repayments spreading over the term, which include both interest and principal.

Balloon repayment: a balloon loan is similar to an amortized loan, except there is a large payment at the end of the loan’s tenor. The size of the balloon payment affects the size of the equal payments, which include both principal and interest. The bigger the balloon, the smaller the previous payments.

Bullet loan / interest only: A bullet loan is similar to a balloon loan, except the equal payments are comprised of interest only, and the principal is paid at the end as a balloon payment. The structure is most commonly used in bonds, which make equal coupon payments and pay the face value at maturity.

Underwrite/Underwriting (UW): a process that an individual or institution evaluates and assumes the risk of another party for a fee.