Loan Glossary
Advice
A recommendation or statement of opinion that may influence a person in making a decision to acquire, hold or dispose of a financial product.
Balloon payment
The large final repayment at the end of a finance agreement. On paying the balloon payment, the borrower owns the vehicle.
BSB (Bank State Branch)
A unique number associated with bank accounts which identifies the bank and branch of that particular bank in Australia.
Business purpose
The purpose of the facility is wholly or predominantly (50% ore more) for business use.
Comparison Rate
This percentage figure helps identify the true cost of a loan, taking into account the interest rate, some upfront loan set-up costs, the term of the loan, and any ongoing fees.
The comparison rate does not include: government charges; fees and charges associated with optional loan features, and; fees and charges which cannot be determined at the time the comparison rate is provided.
A comparison rate must be quoted on all advertising for home loans and personal loans where an interest rate is stated.
Debt consolidation
A financial strategy where debts are combined (refinanced) into a single debt with the aim of making the repayments more manageable.
Depreciation
The decline in value of an asset over its estimated life. This is relevant for accounting and tax purposes.
Equipment loan
A loan to finance purchase of a vehicle with a charge by way of a goods mortgage taken over the vehicle being purchased. Title to the vehicle is therefore in the name of the borrower that is providing the goods mortgage.
Equity
The value of an investment less any loan amount outstanding. This represents the amount that you have contributed.
Finance lease
A finance lease is a type of finance where most of the risks and benefits of vehicle ownership are transferred to the borrower (the lessee) although the financier (the lessor) still retains legal title. Rentals are fixed for the term of the agreement.
Financier
A professional who handles large-scale financial projects like investments, money-lending, and financing large projects.
Fixed interest rate
This annual percentage figure does not change for a specific fixed period of time, even if market interest rates fluctuate.
Fleet
If the business has five or more vehicles, it is considered a 'fleet'.
Fringe Benefits Tax (FBT)
A Federal Tax payable by an employer on benefits provided to an employee where the benefit is not in the form of salary and wages. For example, the benefit is a right, privilege, service or facility including the use of a car owned by the employer.
Guarantor
A person who agrees to be liable should you default on the loan. A Guarantor is mandatory for personal loan applicants under 18 years of age.
Hire purchase
A Hire Purchase Agreement is a contract under which the vehicle, owned by the financier, is hired to another person upon payment of a fixed rental.
Input Tax Credit
The GST credit available to registered businesses for the GST incurred on business related purchases
Loan default
Non-payment of a loan.
Luxury car
The cost of the vehicle exceeds the 'luxury tax limit', currently $57,009, as determined by the Australian Tax Office (ATO).
Maintained Operating lease
An agreement where the financier enjoys most of the benefits and shoulders the risks of vehicle ownership, while the borrower has possession and use of the leased vehicle. At the end of the lease, the borrower typically hands the vehicle back to the financier with no further obligations subject to return conditions. Rentals are fixed for the term of the agreement.
Non-cash basis
The business accounts for its GST liability or GST credits on the full amount of the GST applicable to the sales and purchases it makes before:
The GST period in which it received or made any payment (even part payment) in relation to those amounts (subject to it holding a valid tax invoice for purchases); or
The GST period in which it issued or has been issued with an invoice in relation to those amounts.
Novated Lease
An arrangement between an employee, employer and a financier (lessor) where an employee has use of a car leased from the financier. The employer makes the monthly lease payments to the financier by deducting them from the employees pre-tax salary in addition to any Fringe Benefits Tax, insurance and car running costs.
Personal purpose
The purpose of the loan is not business related.
Pre-approval
An approval on amount prior to borrow prior to signing a contract of sale for a vehicle.
Product Disclosure Statement (PDS)
This document (or group of documents) describes a financial product or service, including the associated features, benefits, cost and risks. This information is supplied to customers to ensure they are well informed about the product.
Rate of Return
The percentage change in the value of an investment in an asset (or portfolio of assets) over a specified time period.
Residual value
The estimated value of the leased vehicle at the end of the lease term.
Salary Packaging
An option available with some employers, where the employee can choose to forego a portion of their salary in return for the employer providing them benefits of a similar value.
Secured loan
A loan where an asset (such as a car) is offered by the borrower to the lender as security on the loan. The lender can take possession of the asset if the borrower defaults and sell it to recover the costs of the loan. If there is a shortfall after sale of the asset, the borrower is required to pay the lender the outstanding loan amount, including interest, fees and charges.
Security
An asset a borrower offers to a lender as a guarantee (security) for the repayment of a loan. The lender can sell the asset if the borrower cannot repay the loan. If there is a shortfall after sale of the asset, the borrower is required to pay the lender the outstanding loan amount, including interest, fees and charges.
Unsecured loan
A loan where the borrower does not offer security to the lender.
Variable interest rate
A percentage figure (interest rate) that may change in accordance with market fluctuations during the term of a loan.
