Reference
Loan and microfinance glossary
The words that appear in a loan agreement, defined plainly. Written for people borrowing formally for the first time — because you cannot properly agree to a schedule you do not understand.
How to use this
Definitions written to be useful, not flattering
Every definition below describes how a term works in lending generally, and only then says what Alector specifically does. That order is deliberate: a glossary that quietly redefines industry words to suit the lender publishing it is worse than no glossary at all.
Several entries run against our own commercial interest — what to interrogate about an interest rate, what to check before agreeing to act as a guarantor, why an arrangement fee can make a cheap-looking loan expensive. Those are the ones worth reading first, here or anywhere else you are offered credit.
6 terms
Borrowing basics
The words that describe the loan itself — what you take, and on what terms.
- Principal
The amount of money you actually borrow, before any interest or fees are added.
If you borrow $600, the principal is $600. Everything else you repay — interest, and any fee — sits on top of it.
Keeping the distinction clear matters when comparing offers. A lender quoting “you repay $720” is telling you the total; a lender quoting “$600 at 20%” is telling you the principal and the rate. Those can describe the same loan.
- Term
The length of time you have to repay a loan, usually expressed in months.
A three-month term means the loan is scheduled to be fully repaid three months after disbursement.
Term is the lever most borrowers underuse. A longer term makes each instalment smaller but generally increases what you pay in total, because you are borrowing the money for longer. The shortest term you can comfortably service is usually the cheapest.
- Disbursement
The moment an approved loan is actually paid out to you, which starts your repayment schedule.
Approval and disbursement are not the same event. A loan can be approved and still not disbursed — while a final document is verified, for example.
At Alector your repayment schedule becomes active the moment the loan is disbursed: not when you applied, and not when it was approved.
- Credit limit
The maximum a lender will currently advance to you, based on your income and track record.
A limit is not a target. It is a ceiling — the most a lender is prepared to risk on you right now, not a recommendation of what to take.
At Alector, new customers start at up to $500, and the limit grows with your trust score as instalments settle, reaching up to eight times the starting limit at gold tier.
- Working capital
Money that funds the day-to-day trading cycle of a business — buying stock, paying for materials.
A working-capital loan funds one turn of a business: buy stock, sell it, repay. It is not for buying a vehicle or a building, which are assets used over years.
Matching the term to the trading cycle is the whole discipline. Borrowing over six months to fund stock that sells in six weeks means paying for credit you stopped needing months ago.
- Asset finance
Longer-term borrowing to buy equipment or a vehicle, usually secured on the asset itself.
Asset finance is typically written over three to five years and secured against the thing being bought, so the lender can recover it if payments stop.
Alector does not offer asset finance. Our longest published term is twelve months, which produces an unaffordable instalment on a five-year asset. Above roughly $8,000, a bank or a dedicated asset-finance provider is the right lender.
5 terms
What it costs
How the price of credit is expressed, and why the same rate can mean very different amounts.
- Interest
The charge a lender applies for the use of its money, expressed as a percentage of what you borrowed.
Interest is the price of credit. It compensates the lender for the risk that you do not repay, and for not having the money available meanwhile.
The percentage on its own tells you less than people assume — see interest basis. Two loans both advertised at “15%” can cost very different amounts.
- Interest basis
The rule for how a quoted rate is actually applied — the single most important question to ask a lender.
A rate of “15%” is meaningless until you know 15% of what, and how often. Flat interest applies the percentage once to the original principal. Reducing-balance interest applies it to what is still outstanding, so the charge falls as you repay. A monthly rate compounds twelve times a year.
The same headline number can therefore describe loans that differ enormously in cost. This is the question most borrowers never ask, and every borrower should.
Whatever the basis, the protection is identical: ask for the repayment schedule before you accept. It shows real amounts on real dates, and no percentage can hide behind it.
- APR (annual percentage rate)
The yearly cost of a loan including fees, standardised so different offers can be compared like for like.
APR exists to solve the interest-basis problem. By expressing everything as an annualised figure that includes compulsory fees, it lets you compare a three-month loan against a twelve-month one honestly.
It has a well-known distortion on short loans: annualising a small charge over a short period produces a very large-looking number. A modest fee on a one-month loan can read as a triple-digit APR without the loan being unreasonable.
Use APR to compare between lenders, and the repayment schedule to decide.
- Total repayable
The full amount you will hand over across the life of a loan — principal plus interest plus any fees.
This is the number that actually matters, and the first one to ask for. It requires no interpretation and no arithmetic on your part.
On an Alector loan you can read it straight off your repayment schedule by adding up every instalment. If a lender cannot or will not give you this figure before you sign, that is itself the answer to your question.
- Origination or arrangement fee
A one-off charge some lenders apply for setting up a loan, often deducted before you receive the money.
Where such a fee is deducted at disbursement, you receive less than the principal but repay the full amount — which pushes the real cost above the headline rate.
At Alector, applying is free, and any fee that applies to your loan appears on your repayment schedule before you accept it. A charge that is not on that schedule does not apply to your loan.
4 terms
Paying it back
How a schedule works, how payments are applied, and what settling early actually does.
- Repayment schedule
The document listing every instalment you owe, its exact amount and its due date.
A schedule turns a percentage into facts: this much, on this date, this many times. It is the most useful document in consumer lending, and the one borrowers most often never see before signing.
At Alector the schedule is generated for you to review before you accept a loan, and it is the authoritative statement of what you will pay. Where anything published elsewhere conflicts with it, the schedule governs.
- Instalment
One scheduled payment out of the series that repays a loan.
Each instalment usually covers part of the principal plus the interest attributable to that period.
The instalment — not the loan size — is the figure to test against your income. A $5,000 loan is neither large nor small in itself; it is affordable or unaffordable relative to what reaches your account each month.
- Oldest-first allocation
A rule applying each payment to your longest-outstanding instalment before any newer one.
Alector applies every payment to your oldest unpaid instalment first. The order is fixed and not at our discretion.
It works in the borrower’s favour: a payment always reduces the part of the loan closest to falling into arrears, rather than being applied wherever is most profitable to the lender.
- Early settlement
Repaying some or all of a loan ahead of schedule, which reduces what you carry.
Some lenders charge a penalty for this, because early repayment costs them expected interest. Always ask before assuming you can clear a loan early at no cost.
At Alector, payments are applied to the oldest unpaid instalment immediately and reflect on your schedule straight away, so settling ahead of schedule reduces your outstanding balance.
7 terms
How you are assessed
What a lender looks at before deciding, and what it is really measuring.
- KYC (know your customer)
The identity checks a regulated lender must complete before it can advance money to you.
KYC is a legal obligation, not a formality a lender could waive if it wanted to. It means verifying you are who you say you are, usually with a national ID and proof of address.
A lender that offers you money with no identity check at all is either not regulated or not real. At Alector, KYC documents are uploaded from your phone and are visible only to you and to authorised staff.
- Proof of income
Evidence that money reaches you regularly — payslips if you are employed, trading records if not.
Employed borrowers usually show recent payslips. Traders, farmers and self-employed people show what their business actually generates: sales records, invoices, stock purchase receipts or bank statements.
The absence of payslips is not the absence of income, and a lender that only understands payslips is not built for most of the Zimbabwean economy.
- Affordability assessment
A lender checking that the instalment fits your income — not merely that you could theoretically pay it.
A responsible assessment asks what the instalment does to a household or a trading cycle once rent, food, fees and transport are covered, and whether you could still pay it if income arrived a month late.
Lending someone their maximum is easy, and it is how borrowers get into trouble. Alector sizes loans against verified income and the cycle the loan sits in, which is why a first loan is deliberately small.
- Trust score
Alector’s measure of your repayment record with us, which sets your borrowing tier and limit.
Settled instalments raise it; overdue instalments lower it. It is built from evidence you generated, rather than imported from a bureau file you have never seen.
The score drives your tier — new, bronze, silver, gold — and each tier unlocks a larger limit. You can see what drives it inside your account, and every decision has a loan officer behind it who can explain it.
- Credit history
The record of how you have repaid borrowing in the past, used to predict how you will repay in future.
Most Zimbabweans have never held formal credit and therefore have no history — a “thin file”. Conventional lenders read that as risk, which creates a circle: you cannot borrow because you have never borrowed.
Breaking that circle is what a small first loan is for. Repaying it creates the record that unlocks everything else.
- Collateral
An asset pledged against a loan, which the lender can claim if the loan is not repaid.
Collateral reduces a lender’s risk, which is why secured loans are usually cheaper. It also transfers that risk to you in a very concrete way.
Alector lends primarily against your trading record and trust score rather than against security. Where collateral or a guarantor is required for a larger facility, we say so before you apply.
- Guarantor
Someone who agrees to repay your loan if you do not — a serious commitment for them, not a formality.
A guarantor is legally on the hook for your debt. Anyone asked to act as one should read the agreement as carefully as the borrower does, because they may end up paying it.
If you are asked to guarantee a loan, ask to see the repayment schedule. You are being asked to underwrite those exact amounts on those exact dates.
4 terms
When things go wrong
The vocabulary of missed payments — worth knowing before you need it.
- Arrears
Money that is overdue — an instalment whose due date has passed without full payment.
Being “in arrears” means at least one scheduled payment was missed. It is a status, not a judgement, and it is recoverable.
At Alector an overdue instalment lowers your trust score and pauses new borrowing until it is settled. The practical consequence is that arrears cost you future access, not only money.
- Default
A formal declaration that a loan agreement has been broken, usually after prolonged arrears.
Default is more serious than being late. It typically triggers recovery action and leaves a lasting mark on your credit record.
Almost every default is preceded by weeks in which a conversation would still have been possible. That is the window worth using.
- Restructuring
Rewriting a repayment schedule so it fits changed circumstances — best agreed before payments are missed.
Where the underlying income still exists but its timing has moved — a delayed salary, a customer who has not paid, a poor season — reshaping the schedule around the new reality is often possible.
It is far easier before a due date than after. A schedule that has not yet been breached can be discussed; an instalment already in arrears is harder to unwind, for everyone.
- Advance-fee fraud
A scam in which someone demands an upfront payment to “release” a loan that does not exist.
It is the most common lending fraud in the region. The approach looks legitimate, the loan is generous, and the only requirement is a modest fee first. The loan never arrives.
No legitimate lender asks you to pay money in order to receive money. Alector will never ask you to pay a fee to release a loan, and will never ask for your password or a one-time code.
The one question to ask any lender
“Can I see the full repayment schedule before I sign?” It converts every percentage on this page into real amounts on real dates, and it is the single most useful thing a borrower can ask. A lender who will not show you one before you commit has answered a different — and more important — question.
Keep reading
Put the vocabulary to work
Rates and fees
Our published rates, what is charged and when, and how repayments are applied.
Read moreRepayment calculator
Turn a rate and a term into an actual monthly instalment before you apply.
Read moreResponsible lending
How affordability is assessed, and what to do if a schedule stops working.
Read more
Know what you are signing
Applying is free, and you see the full schedule — every instalment, every date — before you accept anything.
Free to apply · No hidden fees · Most applications reviewed the same working day