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Jargon Explained

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Jargon Explained

Every day without even noticing you probably use certain terms and phrases that are specific to your job or pastime. The finance and insurance industry is no different! When you’re looking for a loan or lease you can come across lots of jargon and industry terms. While we’ve tried to avoid that on LoanPlace.com.au by using plain English sometimes it’s just unavoidable.

This section is all about explaining the jargon that you may come across when you’re doing your research or having conversations with finance providers.

LoanPlace.com.au is here to help you make sense of it all by providing you with information resources and connecting you with experienced professionals who will search their lenders to find the latest deals so that you get 3 Free Quotes to evaluate and compare.

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A

Accessories – Optional extras that you can add and have fitted to your vehicle, motorbike, boat etc. For example, towbars, window tint etc.

Account keeping fee – A monthly fee charged by the lender for managing the loan account.

Amortisation schedule – A table that details how a loan is paid off over time through regular payments. It shows what portion of each payment goes towards paying interest, what portion goes towards paying loan principal and what the loan balance is.

APR – Annual Percentage Rate. The interest rate charged to the borrower, excluding expenses such as account opening and account keeping fees. The APR is the basic cost of your credit as a percentage of the total loan amount.

APRA – Australian Prudential Regulation Authority. The prudential regulator of the Australian financial services industry. It oversees banks, credit unions, building societies, general insurance and reinsurance companies, life insurance companies, friendly societies, and most of the superannuation industry. APRA is responsible for ensuring Australia has a stable, efficient and competitive financial system. It also provides statistics on the Australian financial sector.

ASIC – Australian Securities and Investments Commission. Australia’s corporate, markets and financial services regulator that enforces laws in order to protect consumers, investors and creditors.

Asset – Item or property that you own or are financing, for example, car, ute, motorbike etc.

Auction – Place to purchase an asset through a bidding process. Large auction houses that specialise in assets include Manheim and Pickles.

Australian Credit Licence – Licence, issued by ASIC, that is required by anybody who wants to engage in credit activities.

 

B

Balloon payment – an amount of the loan or lease that is offset until the end of the loan term which has the effect of reducing your regular repayments.

Bankruptcy – a process for individuals to be legally declared as being unable to meet their debt obligations.

Building Society – a community based financial institution usually owned by its members that offers traditional banking services like savings accounts and loans.

Business purpose declaration – a document that can be provided to a lender to confirm that the purpose of the credit isn’t for personal, domestic or household purposes.

 

C

Cash advance – Cash withdrawn from a credit card account. A transaction fee is usually charged in addition to interest from the date the cash is withdrawn until it is paid back in full.

Comparison rate – A rate that helps you work out the true cost of a loan. It includes the interest rate and most fees and charges relating to a loan, reduced to a single percentage figure.

Compound interest – Interest added to the original amount invested so that the added interest also earns interest from then on.

Credit file – A file kept by a credit report agency that shows your credit history. Lenders access the information in your file to help them decide whether to lend to you. They can also record a default on your file if you make loan repayments late, or don’t pay a utility bill. Every time you make an application for finance an entry is recorded on your file showing the lender you applied to, the type of finance, the amount and the date.

Credit guide – Contains information about the credit provider, such as their licence number, fees and your complaint rights.

Credit provider – As defined by the National Credit Code, credit is being provided when payment of a debt owed by one person to another is deferred or one person incurs a deferred debt to another. The person or entity who the debt is owed to is the credit provider. In summary the credit provider will normally be the bank or finance company, for example, that you make your loan or lease repayments to.

Credit rating – An assessment of the credit-worthiness of individuals and corporations, based on their borrowing and repayment history.

Credit reporting agency – An organisation that collects and sells credit information on individuals and companies.

Credit union – Financial institution owned by its members that offers traditional banking services like savings accounts and loans.

 

D

Dealer delivery – Charge to cover the costs that the dealer incurs for taking delivery of the vehicle from the manufacturer. These costs include administration as well as the detailing, insuring and financing of the vehicle.

Dealership – A franchise that sells a specific brand on behalf of a manufacturer.

Default – Failure to meet a financial obligation.

Deposit – An amount that is put towards the purchase of an asset. It can be in the form of cash or a trade-in.

Depreciation – A decrease in the value of an asset.

Dispute resolution process – An organisation’s internal process for handling consumer complaints.

 

E

Early termination fee – A fee which may be applied if a loan is repaid earlier than the stated term.

Establishment fee – A fee charged by the lender for setting up the loan. It is generally included within the loan amount.

Encumbrance – A charge or claim on an asset that is owned by somebody else. For example, with a secured loan you own the asset but the lender as a claim over it until the debt has been repaid.

Equity – The value of an asset over and above any outstanding finance (loan or lease) relating to it.

Exclusion – In relation to an insurance contract, it is something that is specifically not covered under the insurance policy.

External Dispute Resolution Process – A process for handling consumer complaints that is operated by an external scheme if a complaint cannot be resolved directly by the organisation and the consumer.

 

F

Finance – The money necessary to do fund a purchase.

Finance broker – A go-between who negotiates with banks and other credit providers to arrange loans or leases on behalf of others. They must be licensed by ASIC or be an authorised representative of someone who is licensed.

Finance company – A specialised financial institution that provides credit for the purchase of assets.

Financial institution – An institution that provides financial services for its clients or members, for example a bank or credit union.

Financier – The finance provider that provides the funds to enable someone to purchase an asset.

Fixed interest rate – Interest is paid at a fixed rate over the term of a loan or investment.

Floor plan finance – A system of financing that enables a retailer to borrow money to purchase assets that they can then sell on.

 

G

Guarantor – A person who guarantees a loan for someone else. The guarantor is legally responsible for paying the other person’s debts if the borrower can’t pay them.

 

I

ID – Identification material.

Interest – Payment for the use of money over time.

Interest rate – The relationship between the amount of money borrowed or lent and the money paid in return for the use of that money. Usually expressed as a percentage per year.

Interest free – A loan arrangement where you are usually required to make regular repayments but are not required to pay any interest.

 

L

Lender – A financial institution, such as a bank, credit union or finance company, that allows a person to use a sum of money for a period of time in exchange for the payment of interest.

Low doc loan – A loan that requires little financial documentation. Primarily for borrowers who do not meet the standard loan application criteria.

Low rate finance – A loan or lease provided at an interest rate that is recognised as being below standard marker rates.

 

M

Manufacturer warranty – A voluntary promise made by the manufacturer of a product that if the product is defective it will be repaired. The warranty is normally limited to a specific time period or kilometres travelled in the case of a vehicle, and is usually dependent on the owner of the product carrying out required maintenance and servicing.

Minus equity – Occurs when the value of the asset is less than the outstanding finance (loan or lease) on it.

Mortgage – A loan agreement which is secured by an asset or property, which gives the lender the right to repossess the security if the loan is not repaid.

 

N

NCCP – National Consumer Credit Protection Act. Legislation that is designed to protect consumers when obtaining credit and to ensure that there are ethical and professional standards in the finance industry.

 

O

Options – Extras that you can choose to add and have fitted to your vehicle, motorbike, boat etc. For example, towbars, window tint etc.

 

P

PDS – Product Disclosure Statement. A document that financial service providers must provide to you when they recommend or offer a financial product, including insurance products. It must include information about the product’s key features, fees, commissions, benefits, risks and the complaints handling procedure.

PPSR – Personal Property Securities Register. The register, administered by the Australian Financial Security Authority (AFSA), where details of security interests in personal property can be registered and searched.

Premium – In relation to an insurance contract, it is the price charged by an insurance company for providing the insurance cover.

Principal – The original sum of money invested, or the amount borrowed or still owing on a loan.

Private sale – A sale conducted by the owner of the asset and not a retailer.

 

R

Rate for risk – A system used by some lenders whereby the interest rate that they charge is based on your credit rating and their analysis of your circumstances.

Rebate – An amount paid by way of refund on what has already been paid.

Repayment – An instalment paid back to a lender against an amount that is owed to them.

Repossession – To take back an asset from a buyer who has failed to keep up with agreed repayments.

Residual value – An amount of the loan or lease that is offset until the end of the loan term which has the effect of reducing your regular repayments.

Return – The amount of money your investment earns

Reward points – Points awarded by some credit card providers for amounts that card holders spend using their credit card. The points can usually be redeemed against goods or services.

Road worthy certificate – Some states and territories require an inspection prior to defected, written-off or modified vehicles before they can be registered. A number of organisations also offer inspection services that buyers can use before finalising a purchase.

 

S

Security – Something that is pledged, for example a car, to guarantee the repayment of a loan, that becomes the property of the lender if the loan is not repaid.

Servicing – A series of maintenance procedures carried out at set time or usage intervals. The service intervals are usually determined by the manufacturer.

Stamp duty – A tax levied by states on various instruments (written documents) and transactions. The rates of stamp duty vary from state to state and also vary by the type of instrument and transaction.

Subsidiary – A company controlled or owned by a larger one.

 

T

Term – The length of time a loan, lease or investment will run for.

Title – A legal right to possess and dispose of property.

 

U

Utility company – A company that provides utilities for a property such as, water, electricity and gas.

 

V

Variable interest rate – Where consumers receive interest on an investment or pay interest on a loan at a rate that may go up or down during the term.

Visa – An official authorisation that allows a person to enter, live in or work in a specific country depending on what type of visa they have been granted.

 

0

0% Finance – A loan arrangement where you are usually required to make regular repayments but are not required to pay any interest or fees.

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