Financial glossary

Plain-English explanations of the most common finance terms that appear in our calculators and articles. Definitions are informational and intentionally simplified.

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Annuity payment: A fixed monthly loan instalment (principal + interest) that usually does not change over time. At the beginning, a larger share of the instalment is interest; later, a larger share is principal.
Letter of credit: A payment method used in international trade where the bank guarantees payment to the seller once the agreed conditions are met (for example, when delivery documents are presented).
Advance payment: A partial payment made upfront (for example, when buying a vehicle or a service). It is often used as a down payment or first instalment.
Amortization: The gradual reduction in the value of an asset over time (accounting) or the gradual repayment of a loan (amortization schedule).
Gross: An amount before deductions (for example, taxes and social contributions). For salary, gross pay is higher than net pay.
Balance sheet: A statement showing a company’s assets, liabilities and equity on a specific date. It is a basic tool for reviewing financial position.
Credit rating: An assessment of the creditworthiness of a person or company. A higher credit rating usually means easier access to financing and better terms.
Bank guarantee: A commitment by a bank to pay the beneficiary an agreed amount if the client does not fulfil their obligation (for example, in public tenders or contracts).
Policy rate: The interest rate a central bank uses as a signal for monetary policy. It indirectly affects interest rates on loans and deposits.
Central bank: An institution responsible for price stability and the stability of the financial system. In the eurozone, monetary policy is led by the ECB.
Net present value (NPV): An investment valuation method that discounts future cash flows back to today’s value. A positive NPV usually means the investment makes sense at the chosen discount rate.
Deposit: Money placed with a bank for a fixed period (term / maturity) at an agreed interest rate. Early withdrawal is usually restricted or less favourable.
Dividend: A distribution of part of a company’s profit to shareholders. It can be paid in cash or in shares, depending on company policy.
Debt: An obligation owed to a creditor (for example, a loan, borrowing or bond). Debt must be repaid under the agreed terms.
Discount rate: The interest rate used to convert future amounts into present value. A higher discount rate means a lower present value of future receipts.
DSTI: The ratio between monthly debt obligations and monthly income. Banks use it when assessing creditworthiness.
APR (Annual Percentage Rate): The total annual cost of a loan (interest + fees), expressed as a percentage. It makes offers easier to compare because it includes more than just the nominal interest rate.
ECB: The European Central Bank. It sets key interest rates and steers monetary policy in the eurozone.
ETF: An exchange-traded fund that often tracks an index (for example, a stock index). It provides diversification, and costs are often measured with TER.
EURIBOR: A reference interest rate on the euro interbank market. For variable-rate loans, the total interest rate is often calculated as EURIBOR + the bank’s margin.
€STR: A short-term euro reference interest rate (euro short-term rate). It is used as one of the benchmarks for financial products.
Fixed interest rate: An interest rate that stays the same throughout the agreed period. Instalments are more predictable, but the starting rate may be higher than with a variable interest rate.
Financial leverage: The use of debt to increase potential return. It also increases risk, because losses and financing costs can grow.
Principal: The base amount of a debt or investment, excluding interest. For a loan, the principal is the amount you actually receive.
Mortgage: Loan security backed by real estate. If the borrower does not pay, the bank has the right to recover from the property’s value through the legal process.
Indexation: Adjusting amounts (for example, rent or contract values) according to an index, often inflation. The aim is to preserve real value.
Inflation: A general rise in prices over time. Higher inflation usually means money will have less purchasing power in the future.
Intercalary interest: Interest charged for the period from loan drawdown to the first instalment due date. It is common with housing loans when the loan is drawn in the middle of the month.
IBAN: The International Bank Account Number. It is used for payments and account identification within the SEPA area.
Index: A basket of selected securities or an indicator (for example, a stock index). ETFs often track an index.
Guarantee: A commitment that someone will meet an obligation if the debtor does not. In practice, this can be a guarantor or a legal undertaking (for example, a guarantee).
Equity: An ownership source of financing (in a company or household). On the balance sheet, it represents the difference between assets and liabilities.
Capitalization (compound interest): A calculation in which interest is added to principal, and then interest is also earned on that interest. It is common in saving and long-term investing.
Creditworthiness: An assessment of how much borrowing you can realistically afford based on income, obligations and the bank’s rules. Term / maturity, interest rate and collateral also matter.
Credit card: A payment card with deferred payment. If you do not repay the full amount, interest and fees may apply, depending on the product.
Capital gain: Profit resulting from an increase in the value of an investment (for example, selling shares above the purchase price). It may be taxable.
LTV (loan-to-value): The ratio between the loan amount and the value of the collateral (for example, real estate). A higher LTV usually means more risk and may lead to worse terms.
Liquidity: How quickly an asset can be converted into cash without a major loss in value. Higher liquidity usually means more flexibility.
Margin / spread: The additional part of an interest rate set by the bank (for example, for a loan priced as EURIBOR + spread). The total interest rate is the sum of the reference rate and the spread.
Bill of exchange: A negotiable instrument in which the issuer promises payment of a specific amount on a specific date. It is also used as collateral.
Moratorium: A temporary suspension or deferral of payments (for example, postponing loan instalments) under certain conditions.
Net: An amount after deductions (for example, taxes and social contributions). For salary, net pay is the amount you receive in your account.
Nominal interest rate: The basic interest rate without including all fees and costs. For comparing loans, APR is often more useful.
Investment risk: The possibility that the return on an investment will differ from expectations, including negatively. Higher potential return often means higher risk.
Interest rate: The price of money, expressed as a percentage. For a loan, it is the cost of borrowing; for a deposit, it is the return for tying up funds.
Bond: A debt security. The buyer of a bond lends money to the issuer (state/company) and receives interest plus repayment of principal at maturity.
Compound interest: The effect where interest is added to principal, and in the next period interest is also charged or earned on that interest.
Balloon payment: An amount you pay at the end of some leases if you want to take ownership (balloon / buyout).
Opportunity cost: The value of the best alternative you give up when choosing a particular decision. Example: if you use 5.000 € for early loan repayment, the opportunity cost may be the return that money could have earned in another investment, or vice versa: if you invest the money, you give up the interest savings.
Premium: An additional payment, often in insurance (insurance premium) or as an amount above price (for example, for bonds trading above nominal value).
Down payment: Your initial own contribution (for example, in a loan or lease). A higher down payment usually lowers the financed amount and the interest cost.
Guarantor: A person who guarantees the borrower’s obligations. If the borrower does not pay, the bank can demand payment from the guarantor, in line with the contract and the law.
Portfolio: A collection of investments (for example, shares, bonds, ETF). The aim of a portfolio is diversification and risk management in line with the investor’s goals.
Early repayment: Repaying a loan before the end of its term / maturity. This can reduce interest costs, but fees or compensation may apply.
Risk premium: The additional expected return an investor demands for taking on higher risk (for example, shares vs. government bonds).
Real interest rate: An interest rate adjusted for inflation. Roughly: nominal interest rate minus inflation.
Term / maturity: The period for which you take out a deposit or a loan. For a deposit, it is the lock-in period; for a loan, it is the repayment period.
Refinancing: Replacing an existing loan with a new one, often on better terms. The goal may be a lower instalment, a lower interest rate or a different term / maturity.
SWIFT / BIC: A bank code used for international payments. It is used together with IBAN, especially for payments outside SEPA or for identifying the bank.
Spread: The difference between two interest rates or two prices (for example, bid and ask). In lending, it can also describe the margin above a reference rate.
SEPA: The Single Euro Payments Area. It enables standardised euro transfers and direct debits between member countries.
Fund: An investment product where multiple investors pool money and a manager invests it according to a set strategy. Costs matter here too (for example, TER).
Account maintenance fees: Regular charges for maintaining an account, loan or investment product. When comparing offers, these costs should also be taken into account.
Variable interest rate: An interest rate that can change (for example, when EURIBOR changes). The instalment may be lower at the start, but it is less predictable.
Origination fees: One-off fees charged by a bank or provider when arranging a loan or another service. They affect APR.
TER: The Total Expense Ratio of a fund, expressed as a percentage. A higher TER means higher costs, which can reduce investment returns over time.
TRR (current account): A transaction account used for receiving salary, paying bills and everyday banking. In Slovenia, you may still see the acronym TRR on bank documents.
Risk: The possibility that the outcome will differ from what was expected, including negatively. In finance, it means the possibility of loss or a lower return.
Management fee: The cost of managing an investment product (for example, a fund). It is often part of TER or listed separately.
Savings: Setting money aside for the future (for example, in a deposit or savings account). It is important to consider inflation and real value.
Currency risk: The risk that a change in the exchange rate will change the value of an investment or liability in your home currency.
Default interest: Interest you pay if you settle an obligation late. The rate and rules may be set by contract and law.
Insurance premium: The price of insurance. You pay it monthly or annually, depending on the insurance contract.
Loan collateral: The way a bank reduces the risk of non-payment (for example, a mortgage, guarantor or insurance policy). It affects the terms and the interest rate.
Life insurance: Insurance that pays out an agreed amount when a defined event occurs (for example, the death of the insured person). It is sometimes used as part of loan security.