Personal Loan Terminology
Personal Loan Terminology
A lot of people find that when they are applying for a personal loan there are some words, phrases and abbreviations that they do not know the meaning of. Some banks, credit unions and finance companies make use of complicated wording in their loan documentation in order to protect themselves. Therefore it's essential that you fully understand the meaning of the words and phrases in these documents before you sign them.
The following list features straight forward definitions for all of the confusing terminology and abbreviations that you will find when applying for a secured or unsecured personal loan.
| AAPR | This acronym refers to Annualised Average Percentage Rate. It is the interest rate that is used for comparing loans because it is a calculation that includes all fees, honeymoon rates, different compounding periods and many other factors. |
| Additional Repayments | This is where extra money is paid into the loan account, over and above the minimum prescribed repayment. |
| Application Fee | Fees charged to cover or partially cover the lender's internal costs of setting up a loan approval for a home buyer. |
| Appreciation | The increase in value of an asset over time. |
| Arrears | When a repayment amount is missed and becomes overdue. |
| Asset | A tangible item that you own. |
| Bank Cheque | A cheque that is drawn from a specific bank and is treated as good as cash. |
| Bankruptcy | When someone who owes money has their finances placed into the hands of a receiver because they cannot repay their debts. |
| Compound Interest | Interest that is calulated on both the original principal amount and also the accumulated interest from previous days/months. |
| Consumer Credit Insurance | An Insurance policy that covers the debtor ability to make repayments in the event of the debtor's sickness, injury, disability, death or unemployment. |
| Contract | A signed document that is a legally enforceable agreement between individuals or entities. |
| Countersigned | Additional signature that guarantees the validity of a document. |
| Cover Note | A note of temporary insurance that is issed before the implementation of the actual policy. |
| Credit Limit | The maximum amount of money that a borrower can use at any one time. |
| Depreciation | The decrease in the value of an asset over time. |
| Daily Interest | Interest calculated on a daily basis, therefore it varies according to the account balance on each day. |
| Debit | A transaction on an account that represents a withdrawal from the account. |
| Debtor | A person or company who owes money to someone else. |
| Default | Failure to meet your debt repayment obligation on the due date. |
| Deposit | An amount of money that is paid by the buyer at the time of purchase, normally given as a % of the total purchase price. |
| Disposable Income | Regarded as income that is left over after all known expenses have been taken into account (eg: mortgage payments, bills, insurances, etc). |
| Equity | The actual amount of an asset that you actually own after taking into account the loan amount outstanding. |
| Establishment Fee | Fees that are charged to set up a new loan. |
| Fixed Interest | An interest rate that is set and cannot change for an agreed period of time. |
| Garnishee | When money is legally diverted directly from someone's wages in order to pay a debt to someone else. Usually applied by the courts to force payment of money that is owed. |
| Gearing | The ratio of your own money to borrowed money in a particular investment. |
| Interest Only Loan | A loan where you only make repayments of the interest amount during the term and the principal remains the same. |
| Liability | An amount that you owe to a lender or another person. |
| Loan to Value Ratio | Also known as LVR, it is the ratio of the amount loaned relative to the valuation of the asset (always given in terms of a percentage). |
| Maturity | The date when a loan finishes and the debt must be paid in full. |
| Mortgage Broker | A person or organization that offers a service where they will select the best loan for a borrower from a panel of lenders. |
| Ombudsman | The Australian Banking Industry Ombudsman is a government agency that provides a place where customers can make complaints about finance companies and have the complaint dealt with independently. |
| Ongoing Fee | Any loan fee that is charged regularly over the life of a loan. |
| Online Banking | Banking transactions such as transfers, payments and withdrawals that can be made via the Internet. |
| Principal | The capital sum that was borrowed and which interest is paid on. |
| Redraw Facility | A loan facility where borrowers are allowed to make additional repayments and then, when needed, access these extra funds by making a withrawal from the loan account. Some facilities will have fees for each withdrawal or a limitation on the minimum amount that you can redraw. |
| Refinancing | To borrow money from the same or another financial institution and use those funds to pay out an existing loan. |
| Security | An asset that the lender uses to guarantee the loan until such time as the borrowed amount is repaid in full. |
| Settlement Date | The date on which the loan begins, the finances are settled and the new owner takes possession of the asset. |
| Term | The length or duration of the personal loan. |
| Transaction Fee | A fee that is charge for each and every transactions that you make (ie: withdrawal, transfer & deposit). |
| Unregulated | A loan contract, mortgage, guarantee or financial document where the Consumer Credit Code does not apply. |
| Valuer | A professionally qualified person who's job is to estimate the value of specific asset. |
| Valuation | Estimate of the value of a asset being used as security for a loan. |
| Variable Interest Rate | An interest rate that will vary over time accordance with the rates in the broader economy. |
We hope that you appreciate and are able to make the most of the Free definitions for some of the Personal Loan Terminology that is used in Australia. At Australian Loans we pride ourselves on providing accurate and helpful information about personal loans, so if there is anything that you think is unclear of needs to be added then please let us know by filling out the form below.
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