Glossary – L

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L

Late Charge
The penalty a borrower must pay when a payment is made a stated number of days (usually 15) after the due date.

Leading Economic Indicators
This index is a composite of 11 statistics designed to foretell economic activity 6 to 9 months, (i.e. building permits, new orders for consumer goods and materials, the average workweek, index of consumer expectations).

Lease
A contract in which one part conveys the use of an asset to another party for a specific period of time at a predetermined rate.

Lease-Purchase Mortgage Loan
An alternative financing option that allows low- and moderate-income home buyers to lease a home with an option to buy. Each month’s rent payment consists of principal, interest, taxes and insurance (PITI) payments on the first mortgage plus an extra amount that accumulates in a savings account for a down payment.

Lease Rate (Rental Payment)
The periodic rental payment to a lessor for the use of assets. Others may define lease rate as the implicit interest rate in minimum lease payments.

Lessee
The user of the equipment being leased.

Lessor
The party to a lease agreement who has legal or tax title to the equipment for the lease term, and is entitled to the rentals.

Leverage
Measures the firm’s use of borrowed funds versus those funds provided by the shareholders or owners (equity).

Leveraged Lease
In this type of lease, the lessor provides an equity portion (usually 20 to 40 percent) of the equipment cost and lenders provide the balance on a non-recourse debt basis. The lessor receives the tax benefits of ownership.

Liabilities
A person’s financial obligations. Liabilities include long-term and short-term debt.

Lien
A claim upon a piece of property for the payment or satisfaction of a debt or obligation.

Lifetime Payment Cap
For an adjustable-rate mortgage (ARM), a limit on the amount that payments can increase or decrease over the life of the mortgage.

Lifetime Rate Cap
For an adjustable-rate mortgage (ARM), a limit on the amount that the interest rate can increase or decrease over the life of the loan. See cap.

Line of credit
Although not a contract, a bank’s promise to lend to a specific borrower up to a pre-agreed amount during a specific time frame. Usually reviewed annually and subject to cancellation without notice.

Liquid assets
Those assets that can be readily turned into cash.

Liquidity
Gauges firm’s ability to quickly turn assets into cash.

Loan
A sum of borrowed money (principal) that is generally repaid with interest.

Loan-to-Value Ratio
The relationship between the amount of the mortgage loan and the appraised value of the property expressed as a percentage.

Lock
Lender’s guarantee that the mortgage rate quoted will be good for a specific number of days from day of application.

Lines of Credit
An arrangement in which a bank or vendor extends a specified amount of unsecured credit to a specified borrower for a specified time period.