Glossary of Terms

Common financing and credit terms you should understand.

Promissory note
A promissory note is a legal document that the borrower must sign to get a loan. By signing this note, the borrower promises to repay the loan with interest in specified installments. The promissory note contains the terms and conditions of the loan, including how and when the loan must be repaid.

Dating
Dating is a form of short-term financing that allows customers to pay for certain purchases beyond the terms normally offered.

“Take back a note”
When the seller helps the buyer by acting as a lender, the seller may finance all or part of the sale. Another term given to such seller financing is “seller carry back” financing. The seller is literally carrying back part of the financing on the property being sold.
Some advantages of “seller carry back” financing to the seller include:

Getting a better price by providing financing for the buyer rather than requiring the buyer to pay upfront in cash
Deferring taxes at the time of the sale by using an installment sale
Receiving a higher interest rate from the buyer than if the seller put the proceeds from a cash sale in the bank, a CD, or money market fund
Monthly income secured by property that the seller understands and can monitor
Widening the pool of prospective buyers and a faster sale because of the seller financing

Prime rate
The prime rate is the interest rate charged by banks to their most creditworthy customers. The rate is almost always the same among major banks, and therefore is a practical rate for McKesson to use as the basis for the interest rate it charges on loans. Prime is variable. Adjustments to the prime rate are made by banks at the same time, although the prime rate does not adjust on any regular basis. McKesson typically charges a premium over prime as the rate on a long-term loan, such as prime +2%.