DSST Personal Finance key terms

The yearly cost of borrowing shown as a percentage, including interest and most fees. It lets a borrower compare loan offers on one common scale rather than by interest rate alone.

The total dollar amount paid to use credit, covering interest plus fees such as origination or service charges. It appears on credit card and installment loan disclosures.

Interest calculated on both the original amount and previously earned interest, so the balance grows faster over time. The same effect works against borrowers carrying unpaid credit card balances.

The share of available revolving credit a person is actually using, usually computed per card and overall. High utilization signals risk to lenders and can lower credit scores.

A number summarizing how reliably a person has repaid debt, derived from payment history, amounts owed, length of history, new credit, and credit mix. Lenders use it to price and approve loans.

A card requiring a cash deposit that becomes the credit limit, reducing risk for the issuer. It is often used to rebuild a damaged credit history.

The interval after a statement closes during which a cardholder can pay the full balance and owe no interest on purchases. Carrying a balance usually ends this benefit.

The smallest amount a creditor requires by the due date to keep an account current. Paying only this amount stretches repayment for years and increases total interest.

Monthly debt obligations divided by gross monthly income, expressed as a percentage. Lenders use it to judge whether a borrower can handle an additional payment.

A lender's written estimate of how much it will lend a buyer, based on verified income, assets, and credit. It strengthens an offer but is not a guarantee of final financing.

A deposit a buyer puts down to show serious intent to complete a purchase. It is typically credited toward the purchase price but can be forfeited if the buyer backs out without a contractual escape.

Fees and charges paid at the final settlement of a real estate purchase, such as loan origination, title insurance, and recording fees. Buyers should budget for them separately from the down payment.

Insurance a lender requires when a home buyer's down payment falls below roughly twenty percent. It protects the lender, not the borrower, and adds to the monthly payment.

The decline in a vehicle's market value over time, steepest in the first years of ownership. It is often the largest cost of new-car ownership and matters when comparing buying with leasing.

A contract granting use of an asset for a set period in exchange for payments, without transferring ownership. Vehicle leases typically cap mileage and charge for excess wear.

The projected worth of a leased asset at the end of the contract term. It drives monthly lease payments and sets the buyout price a lessee may pay to keep the asset.

Gross income minus certain above-the-line adjustments such as retirement contributions and student loan interest. It is the starting point for many deductions, credits, and phase-outs.

The amount on which income tax is actually computed, after subtracting adjustments and either the standard or itemized deduction. Tax brackets apply to this figure, not to total earnings.

A fixed amount most filers may subtract from income instead of tracking individual deductible expenses. Taxpayers generally choose whichever is larger between it and their itemized deductions.

Specific expenses a taxpayer lists individually, such as mortgage interest, charitable gifts, and state taxes paid. They reduce taxable income only when their total exceeds the standard deduction.

A direct reduction of the tax owed, dollar for dollar, rather than a reduction of taxable income. Credits are generally more valuable than an equal-sized deduction.

Income tax an employer removes from each paycheck and sends to the government on the employee's behalf. Too little withholding can create a balance due; too much produces a refund.

The rate applied to the next dollar of taxable income, determined by the bracket that dollar falls into. It differs from the effective rate, which is total tax divided by total income.

The amount paid, usually monthly or annually, to keep an insurance policy in force. It is owed regardless of whether a claim is ever filed.

The amount an insured person pays out of pocket before the insurer begins paying a covered claim. Choosing a higher deductible usually lowers the premium.

The share of covered costs the insured pays after the deductible is met, often stated as a percentage split with the insurer. It continues until an out-of-pocket maximum is reached.

Extra liability coverage layered above auto and homeowners limits to protect against large claims or lawsuits. It is relatively inexpensive because it applies only after underlying coverage is exhausted.

The person or entity named to receive policy proceeds or account assets upon the owner's death. Designations generally override instructions in a will.

Spreading money across different assets, sectors, and regions so that one poor performer cannot sink the whole portfolio. It reduces company-specific risk but not overall market risk.

A pooled investment that combines money from many shareholders to buy a diversified portfolio managed professionally. Shares are priced once daily at net asset value.

The annual percentage of a fund's assets deducted to cover management and operating costs. Small differences compound into large sums over decades of investing.

A person's willingness and financial ability to accept investment losses in pursuit of higher returns. It shapes how much should be held in stocks versus safer assets.

The mix of stocks, bonds, cash, and other asset classes in a portfolio. It is a primary driver of both long-run return and short-term volatility.

A loan an investor makes to a government or corporation that pays periodic interest and returns principal at maturity. Bond prices generally fall when market interest rates rise.

Describing an account or investment whose earnings are not taxed until money is withdrawn. Deferral lets the full balance keep compounding in the meantime.

The minimum amount that must be withdrawn annually from most traditional retirement accounts after a set age. Failing to take it triggers a substantial penalty tax.

The court-supervised process of validating a will and distributing a deceased person's assets. It is public and slow, which is why people use trusts and beneficiary designations to avoid it.

A legal document authorizing one person to act on another's financial or medical decisions. A durable version remains effective if the principal becomes incapacitated.

The amount a sum will grow to after earning interest over time at a given rate. It underlies savings and retirement projections and depends heavily on the number of compounding periods.