# Lending Glossary — 67+ Indian Banking & Loan Terms ### Amortisation The gradual repayment of a loan through regular EMIs, where each payment covers the interest accrued for that period plus a slice of outstanding principal. Early EMIs are mostly interest; later EMIs are mostly principal. ### Amortisation Schedule A month-by-month table showing how each EMI is split between interest and principal, along with the outstanding balance after every payment. ### Balance Transfer Moving an outstanding loan to a new lender who offers a lower interest rate or better terms, reducing the total interest burden. Processing fees and legal costs apply and should be factored into the savings calculation. ### Balloon Payment A large lump-sum payment due at the end of a loan tenure, with smaller-than-normal EMIs during the repayment period. Common in vehicle and commercial loans. ### Base Rate The minimum interest rate set internally by each bank below which it could not lend, introduced by RBI in 2010 and replaced by MCLR in 2016. Existing Base Rate loans may still be active. ### BPLR The interest rate benchmark used by Indian banks before July 2010, now defunct for new loans. Superseded by the Base Rate, which was itself replaced by MCLR and then RLLR. ### Bridge Loan A short-term secured loan (typically 6–12 months) that provides funds to purchase a new asset before an existing asset is sold. Interest rates are higher due to the temporary and transitional nature. ### Charge on Property A formal encumbrance registered with the sub-registrar or Registrar of Companies indicating that a lender holds a financial interest in the property as security for a loan. ### CIBIL Score A three-digit credit score (300–900) generated by TransUnion CIBIL, India's oldest credit bureau, based on your repayment history, credit mix, and credit utilisation. Lenders use it as the primary measure of creditworthiness. ### Co-borrower A joint applicant who shares equal legal and financial responsibility for repaying the loan and may co-own the underlying asset. Adding an earning co-borrower can raise loan eligibility. ### Credit Score A three-digit numerical summary (typically 300–900) of your credit history compiled by licensed credit bureaus — TransUnion CIBIL, Experian, Equifax, and CRIF High Mark — and used by lenders to assess risk. ### Credit Utilisation The percentage of your total sanctioned credit card limit currently in use; high utilisation signals financial stress and reduces your credit score. ### CSIS A central government scheme providing 100% interest subsidy on education loans during the moratorium period for students from families with annual income up to ₹4.5 lakh. ### Disbursement The actual release of sanctioned loan funds — to the borrower's bank account or directly to the seller, builder, or institution. Interest accrues from the disbursement date, not the sanction date. ### DRT A quasi-judicial body established under the Recovery of Debts and Bankruptcy Act, 1993 for banks and financial institutions to recover outstanding dues above ₹20 lakh without going through civil courts. ### ECS The older RBI-managed system for automated periodic debits (EMIs, insurance premiums) from bank accounts; being progressively replaced by the more robust NACH platform. ### EMI A fixed monthly payment combining both the interest charges for the period and a portion of principal repayment, calculated so the outstanding balance reaches zero by the last instalment. ### Encumbrance Certificate A document issued by the sub-registrar's office listing every registered transaction (mortgage, sale deed, release deed) against a specific property for a requested time period. ### Fixed Rate An interest rate that remains unchanged for the agreed loan tenure, regardless of movements in market benchmark rates. Provides EMI certainty but is typically higher than floating rates. ### Floating Rate An interest rate that changes periodically in line with a benchmark rate such as the RBI repo rate or the bank's MCLR. Your EMI or loan tenure adjusts when the benchmark moves. ### FOIR The share of a borrower's gross monthly income committed to all fixed loan obligations (existing EMIs + proposed new EMI). Banks cap FOIR at 40–55% to ensure affordability. ### Foreclosure Fully closing a loan account before its scheduled maturity by paying off the entire outstanding principal in one lump sum. RBI prohibits foreclosure charges on floating-rate retail loans. ### Guarantor A third party who agrees to repay a loan if the primary borrower defaults, without co-owning the financed asset. Their creditworthiness and income are assessed during the loan application. ### HFC An NBFC specifically registered with the National Housing Bank (NHB) to provide home loans and allied housing finance products. Regulated differently from banks; examples include LIC HFL and PNB Housing Finance. ### Hypothecation A charge on a movable asset (vehicle, machinery) offered as loan security, where the borrower retains physical possession and use of the asset. The lender can seize it only on default. ### Index II A certified extract from a sub-registrar office summarising all documents registered against a property — sale deeds, mortgages, release deeds — for a specified period. ### Key Fact Statement A standardised, one-page document mandated by RBI that lenders must provide to all retail loan applicants before disbursal, disclosing the Annual Percentage Rate, all fees, and reset terms. ### KYC The regulatory process of verifying a customer's identity and address before providing financial products, mandated by RBI and SEBI to prevent fraud and money laundering. ### Lien A lender's legal right to retain or claim a borrower's specific asset until the associated debt is fully repaid, preventing the asset from being transferred or encumbered. ### Loan Against Property A secured multipurpose loan where an owned property (residential, commercial, or industrial) is pledged as collateral; funds can be used for business expansion, education, medical emergencies, or any lawful purpose. ### LTV Ratio The proportion of a property's assessed value that a bank will finance, expressed as a percentage. The remaining amount must come from the borrower as a down payment (margin money). ### Margin Money The borrower's own contribution towards the purchase price of an asset — the gap between the asset's cost and the loan amount. Also called down payment or own contribution. ### MCLR An internal benchmark rate published monthly by each bank, below which it cannot lend (applicable to loans sanctioned April 2016 – September 2019). It replaced the Base Rate and has itself been replaced by RLLR for new retail loans. ### Moratorium A lender-approved temporary suspension of loan repayments during which no EMIs are due. Interest continues to accrue on the outstanding principal and is either added to future EMIs or extends the tenure. ### Mortgage A charge on immovable property (land or building) created in favour of a lender as security for a loan, giving the lender the legal right to sell the property on default. ### MUDRA A government scheme providing collateral-free business loans up to ₹10 lakh through banks, MFIs, and NBFCs in three tiers: Shishu (up to ₹50,000), Kishore (₹50,001–₹5 lakh), and Tarun (₹5–₹10 lakh). ### NACH The standardised, centralised payment infrastructure operated by NPCI enabling banks and businesses to process high-volume, recurring debit mandates — including loan EMI auto-debits. ### NACH Mandate The signed authorisation form submitted by the borrower allowing the lender to auto-debit a specified EMI amount from a designated bank account on a recurring date. ### NBFC A company registered with RBI under the Companies Act that provides financial services such as loans, hire-purchase, and leasing, but cannot accept demand deposits from the general public. ### NHB The statutory regulator for Housing Finance Companies (HFCs) in India, established under the National Housing Bank Act 1987. It also refinances HFCs at concessional rates to promote affordable housing. ### NOC A formal letter issued by a lender confirming that a loan is fully repaid and all charges or liens on the collateral are released, allowing the borrower to freely transfer or sell the asset. ### NPA A loan account classified by a bank when the borrower has not paid principal or interest for more than 90 consecutive days, triggering provisioning, credit bureau reporting, and recovery proceedings. ### Overdraft Facility A revolving credit arrangement where you can withdraw up to a sanctioned limit, repay at any time, and re-borrow; interest is charged only on the daily outstanding balance. ### PDC A cheque signed today but dated for a future month, submitted to a lender as security for EMI payments. Now largely replaced by NACH mandates which offer better reliability. ### Pledge A security arrangement where the borrower physically delivers a movable asset (gold, shares, NSC, FD) to the lender; ownership stays with the borrower but possession is with the lender. ### PMAY A central government scheme providing upfront interest subsidies on home loans for first-time buyers in the EWS, LIG, MIG-I, and MIG-II income categories under the Credit Linked Subsidy Scheme (CLSS). ### Pre-EMI Interest-only payment made on the disbursed portion of a home loan during the construction phase of a property. Full EMI (principal + interest) begins only after complete disbursement. ### Prepayment An extra payment made towards the loan principal over and above scheduled EMIs, reducing the outstanding balance faster. This lowers total interest paid and can shorten tenure significantly. ### Principal The original loan amount disbursed, or the outstanding balance yet to be repaid, excluding any accrued interest. Each EMI reduces the principal by a progressively increasing amount. ### Processing Fee A one-time, non-refundable charge levied by the lender to cover the administrative cost of evaluating and processing a loan application; typically 0.25%–2% of the loan amount. ### RBI India's apex monetary authority and the primary regulator of all scheduled commercial banks, payment systems, and NBFCs. It sets the repo rate, issues master directions on lending, and protects borrowers' rights. ### Repo Rate The short-term interest rate at which RBI lends overnight funds to commercial banks; it is RBI's primary monetary policy tool and the benchmark for all RLLR-linked retail loans since October 2019. ### Reset Clause A provision in a loan agreement specifying when (monthly, quarterly, or annually) and how the interest rate is revised in response to changes in the benchmark rate. ### RLLR The interest rate directly pegged to RBI's repo rate plus a fixed spread set by each bank. All new floating-rate home, personal, and small business loans are mandatorily linked to RLLR since October 2019 (also called EBLR — External Benchmark Lending Rate). ### Sale Deed The primary legal document executed and registered between buyer and seller that transfers legal ownership of immovable property. Banks scrutinise it to confirm clear, unencumbered title. ### Sanction Letter An official document issued by the lender confirming loan approval with the amount, interest rate, tenure, EMI, and all applicable charges. Valid for 3–6 months; disbursement must occur within this window. ### SARFAESI A 2002 law allowing banks and financial institutions to seize and auction mortgaged or hypothecated assets without a court order, once a loan is classified as NPA and a 60-day demand notice is issued. ### Section 24b An Income Tax Act provision allowing a deduction of up to ₹2 lakh per year on home loan interest paid for a self-occupied property, reducing taxable income. ### Section 80C An Income Tax provision allowing a combined deduction of up to ₹1.5 lakh per financial year on home loan principal repayment along with other qualifying investments (PPF, ELSS, life insurance, etc.). ### Section 129 (formerly 80E) An Income Tax provision allowing 100% deduction of interest paid on an education loan — with no monetary cap — for up to 8 years from the year repayment begins. ### Spread The fixed percentage margin added above a benchmark rate (repo rate or MCLR) to arrive at the borrower's final loan interest rate. Also called mark-up; it is set at sanction and changes only with the lender's explicit agreement. ### Step-up EMI A repayment structure where EMI amounts start lower and increase at pre-agreed intervals (usually annually), designed for borrowers who expect income growth over time. ### Subvention Scheme A builder-bank arrangement where the developer pays the home loan interest on behalf of the buyer until property possession, marketed as "no EMI until possession". The cost is typically embedded in a higher property price. ### Teaser Rate An artificially low initial interest rate — typically 1–2% below market — that resets to normal market rates after 1–3 years. RBI requires lenders to prominently disclose the post-reset rate. ### Tenure The total duration of a loan from the disbursement date to the final EMI payment, expressed in months or years. Longer tenure reduces monthly EMI but significantly increases total interest paid over the life of the loan. ### Title Deed The document that proves a person's legal ownership of a property; a clean title deed free of disputes, encumbrances, or litigation is mandatory for a bank to sanction any property-backed loan. ### Top-up Loan An additional loan disbursed by the existing lender on top of an already-running loan, secured against the same collateral, after a satisfactory repayment track record. Interest rates are typically at par with the underlying loan.