ABN (Australian Business Number) – Registered businesses within Australia are issued with this number by the Australian Taxation Office.
Administration Fee – Banks charge a monthly fee to an account for its management and for services they have provided.
Application fee – An amount charged for creating a loan.
APR (Annual Percentage Rate) – For a loan, the interest rate that is charged over a 12-month period. In general, interest is compounded on a daily basis, but it’s usually charged on a monthly, quarterly or yearly basis.
ASIC (Australian Securities and Investments Commission) – Government body which has oversight over banks and other Australian financial institutions.
Asset (secured) – An asset provided as collateral by the borrower to provide security on a loan.
Automatic deduction – A payment made electronically direct from a bank account, generally at a predetermined date.
Balance Sheet – A statement of a business’ assets, liabilities and net equity.
Balloon payment – A repayment of the residual value of a loan, made at the end of the loan period. Often used as a means to lower the borrower’s monthly repayments throughout the duration of the agreement.
Borrower – An entity that has loaned money from a bank or some other lender. Also known as a debtor.
Break costs – Fees incurred when paying off a loan before the agreed conclusion of its term.
Car Finance – see Consumer loan, Chattel Mortgage, Commercial Hire Purchase Agreement, Novated Lease.
Chattel mortgage – A loan designed to aid vehicle purchase, where the charge is derived from a goods mortgage on the vehicle in question. Therefore, the vehicle title is possessed by the borrower, who provides the goods mortgage.
Chattels – Personal property. Real chattels refer to buildings and fixtures, while personal chattels cover clothing and furnishings.
Co-borrower – A co-borrower is responsible for the repayment of the entire debt along with the borrower and is subject to identical financial and legal ramifications to the borrower in the event of missed payments or a default.
Commercial Hire Purchase – A Commercial Hire Purchase is a contract between the customer and their finance company. In this type of lease, the finance company purchases the vehicle in question, and gives, or ‘hires’, the rights to its possession and use to the customer in exchange for regular payments.
Comparison rate – An aid to help identify the real cost of a loan contract. Takes into account interest rate, set-up costs and other associated fees.
Compound interest – Interest that continually incorporates accumulated interest with the principal amount.
Consumer – An individual who purchases or makes use of a good or service.
Contract – An agreement between two or more parties recognised and enforceable by the law.
Credit – Money that is lent to a borrower in exchange for a promise of future repayment. It is usually the case that interest is paid on the money that is borrowed, in addition to other fees and charges.
Credit file – This is your Credit history information stored by a credit agency. Past failures to make repayments may show up in the file as a ‘default’, which may prove an impediment to borrowing from certain lenders.
Credit rating – The contents of a credit file, which details an individual’s credit history. A healthy credit rating (for example, a good prior record) is an important factor in securing finance.
Credit report – A report detailing an individual’s credit history that is issued by a licensed reporting agency. Lenders must obtain the permission of potential borrowers in order to acquire a credit report. This is usually in the form of a signature on a privacy authorisation form.
Default – The term used to describe a failure to meet the terms of a loan agreement, typically by falling behind in repayments.
Default rate – The rate of interest applied when repayments are not made or the facility exceeds its limits.
Depreciation – The value an asset loses over its anticipated lifetime.
Direct debit – A payment made electronically direct from a bank account, generally at a predetermined date.
Early termination charges – Fees levied for repaying a loan before its specified conclusion.
Encumbrance – Outstanding liability on a property.
Equity – The current market value of an asset minus any outstanding debt or claim against it.
Expenses – Your day to day outgoings, such as food, housing and leisure.
Financial Services Guide – Provides information to prospective customers about the products and services offered by a finance company.
Finance Lease – A loan where the borrower takes on the benefits and risks of owning a vehicle, but the lessor retains the legal title. Also see Commercial Hire Purchase, Chattel Mortgage and Novated Lease.
Fixed interest – An interest set at a constant level for the agreed period.
Fixed term loan – A loan that must be repaid within a certain period.
Fringe Benefits Tax – Tax paid by employers on benefits provided to employees through salary packaging (for example, a vehicle provided for the employee through a Novated lease agreement).
Guarantee – A contract stipulating that a party accept the responsibilities of discharging the liabilities of a second party, eg. payment of the debt.
Guarantor – A party that has entered a legal agreement to discharge the liabilities on the behalf of another.
Hire Purchase – An agreement whereby the financier retains ownership of a vehicle but leases it in exchange for payment of a fixed rent.
Income – The total amount of money earned by an individual, which includes wages, rental income, investment dividends, interest and government allowances.
Interest – What a lender charges a borrower in exchange for the use of their money, expressed in terms of a percentage of the principal amount.
Interest in advance – Interest that is charged at the commencement of a loan period. This is typically available only for fixed term loans.
Joint debt – Two or more parties that borrow money collectively. Unless otherwise set down, the lender may recover full payment from either party.
Lien – The right to use property to secure a loan.
Loan agreement – A contract between lender and borrower which determines the terms of the loan.
Loan approval fee – A fee payable upon the lenders approval of a loan.
Loan fees – Ongoing management fees throughout the loan period, usually charged on a monthly basis.
Low documentation loan – Generally directed at self-employed borrowers who may not have sufficient documentation to apply for a standard loan.
Luxury car – A vehicle whose purchase price exceeds the $57,009 ‘luxury tax limit’ set down by the Australian Tax Office.
Maturity – the date on which an investment or debt must be paid in full.
Monthly service fee/Monthly account fee – A monthly charge for maintaining an account; varies between accounts.
Mortgage – The charge or assignment of property to secure the payment of a debt and where the property is redeemable upon payment.
Mortgage Stamp Duty – State Government tax determined by the value of the mortgage.
Mortgagee – The lender of funds to buy property secured by a mortgage.
Mortgagor – The borrower of the funds.
Net worth – The value of an individual’s assets minus the amount owing on them.
Novated Lease – The Novated lease is a three-way agreement between three parties: the employer, the employee and the lease company. The employer makes the rental payments on behalf of the employee from the employee’s pre-tax income, as a form of salary packaging, while the employee has use of the vehicle.
Offer to purchase – A contract which stipulates the purchase price of goods or property.
Option to buy – Legally binding document which confers upon an individual the right to purchase at a certain price – typically within a given period of time.
Overdue – Outstanding debt that has not been paid by its due date.
Product Disclosure Statement – Documents that give details about the financial product in question, including costs and associated risks.
Personal loan – A loan whereby money is lent for a fixed period, at either variable or fixed rate interest, with repayments calculated at the outset.
Pre-approval – A provisional estimate of the maximum loan a borrower can take out, as determined by information provided to the bank or other institution. Also known as Approval in Principle.
Principal – The amount of capital that is borrowed/lent, upon which interest is then paid in addition.
Principal and interest loan – For the term of the agreement, both interest and principal repayments are made together.
Repayment – Payments made by a borrower to a lender resulting from an original loan.
Repossession – Occurs in cases where a borrower fails to repay the loan and the lender assumes possession of any assets that have been provided as security.
Residual value – Estimated value of vehicle at the end of the lease term.
Risk – The possible losses one is exposed to when investing over a period.
Risk profile – The risk an individual is prepared to take on in return for potentially higher return
Salary packaging – A method, adopted by some employers, of providing employees with benefits in exchange for forgoing a percentage of their wage.
Secured loan – Loans in which an asset or assets are provided by the borrower as collateral. Should the borrower subsequently default on their loan repayments, the lender assumes possession of the asset, and sells it to recover lost costs. If there still remains a shortfall after the sale, the borrower must fully repay the outstanding amount to the lender.
Security – The assets put up as collateral by a borrower in a secured loan.
Settlement date – The point at which the borrower takes possession of goods or property having made the final payment.
Statement of Advice – A formal record of the products and services recommended to a prospective borrower by a finance company.
Stamp Duty – A Government levy on certain transactions, such as vehicle and property purchases.
TFN (Tax File Number) – Nine-digit number that the ATO issues to Australian residents and companies to facilitate identification for taxation purposes.
Tax invoice – A document that suppliers issue displaying price and GST (if relevant).
Term – A length of time, eg. The period in which a loan must be repaid.
Terms and conditions – Provisions that outline each party’s specific obligations with regards to a contract or transaction.
Unencumbered – Property that is without liabilities or restrictions.
Unsecured loan – A loan in which the borrower offers no assets as security to the lender.
Variable interest rate – A flexible interest rate that may fluctuate during the course of the loan, generally in response to market rates.
