Understanding financial terminology is crucial in today’s complex world. Whether you are managing personal finances, navigating the business world, or simply trying to make informed decisions, grasping financial language is a valuable asset. In this guide, we will explore a range of essential financial terms beginning with the letter ‘C’, providing clear and concise definitions to enhance your financial knowledge.
Canceled Check
A canceled check is essentially a completed transaction in the world of banking. It refers to a check that has been paid by the bank, debited from the account holder’s funds, and then officially endorsed by the bank. Once a check is canceled, it signifies the transaction is finalized and the check can no longer be used for payment or negotiation.
Cashier’s Check
A cashier’s check is a payment instrument issued by a bank, but importantly, it’s drawn against the bank’s own funds, not directly from an individual depositor’s account. While the bank issues the check, the customer requesting it pays for it using funds from their own account. The key advantage of using a cashier’s check is the guaranteed availability of funds. Recipients can be confident that the check will clear, making it a secure form of payment for significant transactions.
Cease and Desist Letter
In the financial and legal context, a Cease and Desist Letter is a formal written request. It’s issued to an individual or company demanding they halt a specific activity outlined in the letter. This letter acts as an official warning and often precedes legal action if the requested activity continues.
Certificate of Deposit
A Certificate of Deposit, commonly known as a CD, is a savings product offered by banks and credit unions. It’s a negotiable instrument, meaning it can be transferred to another party. In essence, you deposit a sum of money for a fixed period (the term) and in return, the bank pays you interest on your deposit. CDs are a popular choice for those seeking a safe, fixed-income investment.
Certificate of Release
When a mortgage is fully repaid, a Certificate of Release, also known as a release of lien, is issued. This certificate is signed by the lender and serves as official confirmation that the mortgage has been completely paid off and all associated debts are settled. It effectively clears the property title, removing the lender’s claim or lien.
Certified Check
A certified check provides a higher level of assurance compared to a regular personal check. It’s a personal check drawn on an individual’s account, but it’s “certified” or guaranteed by the issuing bank to be good. The bank stamps or marks the check with “certified” or “accepted” and an authorized bank official signs it. This certification confirms two key things: the check writer’s signature is genuine, and sufficient funds are available in their account and specifically set aside to cover the check amount.
Charge-Off
In lending, a charge-off occurs when a lender determines that a debt is no longer collectible. The outstanding balance of the credit obligation is then written off as a bad debt. This doesn’t mean the debt disappears, but it signifies that the lender has ceased active collection efforts and acknowledges the unlikelihood of repayment.
Check
A check is a fundamental financial instrument. It’s a written instruction directing a financial institution to immediately pay a specific amount of money from the check writer’s account. The payment is made to the person or entity named on the check (the payee), or if no specific payee is named, to whoever presents the check for payment.
Check 21 Act
The Check 21 Act, formally known as the Check Clearing for the 21st Century Act, is a U.S. federal law enacted to modernize check processing. It enables banks to process checks electronically by creating “substitute checks” – digital images of paper checks. This electronic processing aims to speed up check clearing times and make the overall process more efficient.
Check Truncation
Check truncation is a key process enabled by Check 21. It involves converting the data from a physical paper check into a digital image once it enters the banking system for processing. This process eliminates the need to physically return canceled paper checks to customers, streamlining operations and reducing paper handling.
Checking Account
A checking account is a basic type of bank account designed for everyday transactions. It’s a demand deposit account, meaning the funds in the account are accessible “on demand” by the account holder. The primary way to withdraw funds from a checking account is by writing checks, but debit cards, electronic transfers, and ATM withdrawals are also common.
ChexSystems
ChexSystems is a specialized reporting agency that operates within the financial industry. It maintains a network of member financial institutions that regularly share information about mishandled checking and savings accounts. Banks use ChexSystems reports to assess the risk associated with opening new accounts, helping them identify applicants with a history of account mismanagement. It’s important to note that ChexSystems only provides information; the decision to open an account rests with the individual financial institution.
Closed-End Credit
Closed-end credit refers to a specific type of credit agreement. It typically involves a loan or credit line where the total amount borrowed, along with any finance charges, is expected to be repaid in full by a predetermined date. Common examples of closed-end credit include mortgages and auto loans, where you borrow a fixed sum and repay it over a set period with regular payments.
Closed-End Loan
A closed-end loan is essentially the same as closed-end credit. It’s a loan where the principal amount borrowed, plus interest and finance charges, is scheduled to be paid back in its entirety by a specific date. Installment loans, like mortgages and car loans, are typical examples of closed-end loans with fixed repayment schedules.
Closing a Mortgage Loan
Closing on a mortgage loan, often simply called “closing,” marks the final stage of a real estate purchase financed with a mortgage. It’s the official consummation of the real estate transaction where all necessary legal documents are signed by both the borrower and the lender. Following document signing, the mortgage loan proceeds are disbursed by the lender, completing the property purchase.
Closing Costs
Closing costs are the various expenses incurred by both buyers and sellers during the transfer of real estate ownership. These costs are in addition to the property price and can include a range of fees. Common closing costs are origination fees charged by the lender, discount points (prepaid interest), attorney fees for legal services, loan-related fees for processing and underwriting, title search and title insurance to ensure clear ownership, property survey charges, recording fees to officially register the transaction, and credit report fees.
Collateral
Collateral is an asset pledged to secure a loan or credit. It acts as a form of security for the lender. If a borrower defaults on the loan, the lender has the legal right to seize the collateral and sell it to recover the outstanding debt. For example, in a home mortgage, the house itself serves as collateral.
Collected Funds
Collected funds refer to deposits, whether cash or checks, that have been fully processed and for which the bank has received final payment. This means the deposited funds are definitively available for withdrawal by the account holder, as the bank has confirmed receipt of the money.
Collection Agency
When a debt becomes overdue, a creditor may hire a collection agency to pursue repayment. A collection agency is a company specializing in debt recovery. Creditors typically turn to collection agencies after their own internal efforts to collect the debt, such as sending letters and making phone calls, have been unsuccessful.
Collection Items
Collection items are financial instruments like drafts, promissory notes, and acceptances that are submitted to a bank for collection. These items are credited to a depositor’s account only after the bank successfully receives payment from the paying party. Handling collection items often involves specific procedures and may incur additional fees charged by the bank, known as collection charges.
Collective Investment Funds (CIFs)
Collective Investment Funds (CIFs) are investment vehicles created and managed by banks or trust companies. A CIF pools assets from multiple clients into a single trust fund. While pooled investment vehicles are generally required to register with regulatory bodies like the SEC (in the US), CIFs are often exempt under specific conditions. This exemption typically applies if participation in the CIF is limited to certain types of clients, allowing banks to offer these pooled investments without the full regulatory burden of publicly offered funds.
Comaker
A comaker, also known as a co-borrower, is an individual who signs a loan agreement alongside the primary borrower. By signing, the comaker guarantees the loan repayment and becomes jointly liable for the debt. This means that if the primary borrower fails to repay, the comaker is equally responsible for the full loan amount.
Community Reinvestment Act
The Community Reinvestment Act (CRA) is a U.S. federal law enacted in 1977. Its primary purpose is to encourage banks and other depository institutions to actively meet the credit needs of the communities where they operate. This includes specifically addressing the financial service needs of low- and moderate-income neighborhoods within their service areas.
Consumer Credit Counseling Service
A Consumer Credit Counseling Service (CCCS) is an organization specializing in assisting consumers who are struggling with excessive debt. CCCS agencies provide counseling, debt management advice, and help consumers create arrangements with their creditors to manage and repay their debts effectively.
Conventional Fixed Rate Mortgage
A conventional fixed-rate mortgage is a common type of home loan. “Fixed-rate” means the interest rate on the loan remains constant throughout the entire loan term, typically 15, 20, or 30 years. This also means your monthly mortgage payments will stay the same over the life of the loan, providing predictable housing costs. Each payment covers both principal (the original loan amount) and interest (the cost of borrowing).
Cosigner
A cosigner is similar to a comaker but with a slightly different legal nuance. A cosigner is an individual who signs a loan note to support the creditworthiness of the primary borrower. The cosigner becomes responsible for the loan obligation if the primary borrower defaults. Essentially, the cosigner is guaranteeing the loan based on their own credit standing.
Credit Application
A credit application is a form used to request a credit account. Applicants must complete this form, providing detailed information about their residence, employment history, income, and existing debts. This information allows the lender or creditor to assess the applicant’s creditworthiness and make a decision on whether to grant credit. Sometimes, lenders may charge an application fee to cover the costs of processing the loan application.
Credit Card Account Agreement
A credit card account agreement is a legally binding written document that outlines the terms and conditions governing a credit card account. It details important aspects such as how the account works, how credit can be used, payment obligations of the cardholder, and the responsibilities of the credit card issuer.
Credit Card Issuer
A credit card issuer is any financial institution authorized to issue credit cards, such as banks, credit unions, and other financial services companies. These institutions process credit card applications and, if approved, provide credit cards to consumers.
Credit Disability Insurance
Credit disability insurance is a type of optional insurance that provides financial protection if you become unable to work due to illness or injury. If you are insured and become disabled, the insurance makes payments on your loan, helping to cover your debt obligations during your period of disability. It’s also known as accident and health insurance in some contexts.
Credit Life Insurance
Credit life insurance is another form of optional insurance associated with loans. It’s a type of life insurance designed to pay off a loan balance if the borrower dies before the loan is fully repaid. This protects the borrower’s estate and family from inheriting the debt.
Credit Limit
The credit limit represents the maximum amount you are allowed to borrow or charge on a credit card or line of credit account. It’s the lender-set ceiling on your borrowing capacity. You cannot exceed your credit limit, and doing so may result in penalties or declined transactions.
Credit Repair Organization
A credit repair organization is a company or individual that offers services aimed at improving a consumer’s credit record, credit history, or credit rating. These organizations typically charge fees for their services, which may include disputing information on credit reports or providing advice on credit improvement. However, it’s important to be cautious as some credit repair organizations make unrealistic promises and may not be effective.
Credit Report
A credit report is a comprehensive summary of an individual’s credit history. It’s compiled by credit bureaus and contains information about your borrowing and repayment behavior, including credit accounts, payment history, and any public records related to credit, such as bankruptcies. Lenders use credit reports to assess a loan applicant’s creditworthiness and make lending decisions.
Credit Reporting Agency
A credit reporting agency, also known as a consumer reporting agency or credit bureau, is a company that collects and maintains individual credit information. These agencies sell credit reports for a fee to authorized users, primarily creditors such as banks, mortgage lenders, and credit card companies. Creditors use these reports to evaluate credit applications and manage credit risk.
Credit Score
A credit score is a numerical representation of an individual’s creditworthiness. It’s a score, typically ranging from 300 to 850, that is calculated based on information in your credit report. The most widely used credit score is the FICO® score. Lenders use credit scores as a key factor in determining credit eligibility, interest rates, and loan terms. A higher credit score generally indicates better creditworthiness.
Cut-Off Time
In banking, a cut-off time is a specific time of day established by a bank that affects the processing of deposits. Deposits made before the cut-off time are considered received on that banking day. Deposits made after the cut-off time are treated as if they were received on the next banking day, potentially affecting funds availability.
By building your understanding of these financial terms starting with ‘C’, you are taking a positive step towards greater financial literacy. Continue to expand your financial vocabulary to confidently navigate the world of finance.
