No matter where you are located or whatever is the current pursuit of your life, banks and financial institutions are no doubt a regular interaction in your day to day lives. As with all forms of communication, knowing the language the other party speaks is of crucial importance, especially when you are trying to communicate an idea or message, which would not be possible without the use of industry jargons.
However, as with all other industries, the most frequented jargons in the financial world are often unknown to regular consumers like you and me, and thus in this article, we will share with you some of the most important banking terms and financial terms that you should know about.
1. NEFT or National Electronic Fund Transfer
If you have ever tried to transfer money to your close ones, chances are that you have come across this term. One of the most common bank transfer methodologies, NEFT stands for National Electronic Fund Transfer. Unlike other modes of transfer, NEFT does arrive with certain charges, and the minimum amount you can transfer through this method varies between different financial institutions.
2. Linked Account
For example, let us assume that you have separate accounts in the same branch of your banking institution. For simplification, let’s say that you have a normal saving account with SBI Mysore along with an FD or Fixed Deposit account at the same branch.
Now since both the accounts are in your name, you are given the option of linking them together for increased convenience such that you can not only seamlessly transfer amounts between the accounts but also control their functions from one central dashboard.
3. Base Rate
If you have ever inquired about any kind of loan from a banking partner, you have surely noticed this point mentioned in the contract or agreement. Simply put, the base rate can be understood as a benchmark or the lowest rate of interest at which the bank can lend you a product for a fixed period of time. All the loan products on offer have a base rate, and the final rate of interest offered to the customer is calculated after taking this into account.
4. Balance Transfer
This one for the credit card enthusiasts!
For those of us, who have a credit card, there are times when we wonder how we can transfer our credit limit into actual money in our savings account, and to that balance transfer is the answer. In simple terms, a balance transfer is the process of transferring a fixed percentage of your credit limit into your savings bank account for a predetermined fee.
Available at most leading financial institutions, balance transfer allows credit card users to get access to hard cash when they require it.
In lieu of the previous point, another feature extended to credit card users is cashback. Essentially this is a limited time offer, where the credit card company gives back a certain percentage of the total amount you spend back to you as loyalty rewards. Although available in most credit cards, the mode of cashback might be different, meaning that some institutions offer it as discounts on the overall bill payment while others as movie tickets, discount on consumer durables and other avenues of significant attraction.
6. Credit History
All financial institutions across India rely on one pillar to assess the creditworthiness of a borrower, meaning whether they are responsible enough to pay back the credit line that is being extended to them. While there are multiple factors that determine the creditworthiness of a borrower, the central pillar is credit history or credit score.
Simply put, this is a culminated report of all the credit transactions you have undertaken in the past, right from loans to credit cards. Credit bureaus across the country keep track of your credit history and take into account four main factors to determine your credit score:
- The number of loans you have taken in the past
- The total amount of credit you have utilised in the past
- The total number of timely payments you have made
- The total number of late payments you have made
Amalgamating these four factors, the credit rating agency assigns you a credit score on a scale of 900, and usually, you have to have a score of above 750 to get easily approved for loans and other lending instruments, both short and long term.
7. Documentation Fee
Every transaction you partake in has the requirement of processing certain documents by your banking institution, and this processing is not done free of charge. For example, when you open a new savings account, there is a whole list of documents your bank needs to process all the way from Aadhar and PAN Card to your ITR Returns, and the total of these charges are known as documentation fee.
Although minimal in number in most cases, you are charged this fee automatically whenever you apply or enquire about a new service.
In India, there are mainly two types of loans that are offered to borrowers; one is a secured loan, and the other is an unsecured loan. Now the only significant difference between secured & unsecured loan is the fact that in a secured loan, you have to put forward a collateral, which is essentially a form of security for the bank or financial institution in case you default on your repayment commitment.
In most cases, the collateral you provide needs to be either equal to or greater than the net value of the loan being extended to you, such that the financial institution can cover its losses by relying on this collateral in the event of a default.However with advances in fintech, there are now some banking platforms like Zolve that provide study loans in U.S.A and credit cards for students with no credit history or collateral.
9. No Frills Account
Last but not least, for those of us who are just starting out on our financial journey, one of the best advantages we have is that of availing the features of a zero balance account. Also known as a no-frills account, this is a type of savings account offered at most financial institutions that require you to maintain no minimum balance in order to avail features such as net banking, debit card withdrawals and more.
Learning about the various jargons in the finance world is an important and crucial step in your journey of financial literacy.
Now that you know of the most significant ones tell us in the comments below which other terms would you like us to elaborate on. Until next time, take care and keep learning.