Loan & Finance Glossary

Loan documents, lender websites and broker conversations are full of jargon. This glossary explains common Australian personal, home and business finance terms in plain English, so you can read a quote or a loan contract with more confidence. Use the A–Z index to jump to a letter, and follow the links to our guides and loan calculator where you want more detail. Definitions are general information only and are not personal financial advice.

A

ABN (Australian Business Number)

An 11-digit number that identifies a business to the Australian Taxation Office and other government agencies. Most business lenders ask for an ABN, and many look at how long it has been registered as one sign of trading history. You can look up any ABN on the public ABN Lookup register.

AFCA (Australian Financial Complaints Authority)

The free, independent external dispute resolution scheme for complaints about financial firms, including lenders, credit licensees and insurers. You generally need to raise your complaint with the firm first and give it a chance to respond before AFCA will consider it. Details are at afca.org.au.

Amortisation

The process of paying off a loan through regular repayments that cover both interest and principal over a set term. Early in an amortising loan most of each repayment goes to interest; later, more goes to reducing the balance. Our loan calculator shows how repayments change with the rate and term.

Annual percentage rate

In Australian credit contracts, the annual percentage rate is the yearly interest rate charged on the loan, before fees. It is not the same as the comparison rate, which also factors in most upfront and ongoing fees. Be careful with overseas material, where "APR" can include fees and mean something closer to a comparison rate.

APRA (Australian Prudential Regulation Authority)

The regulator that supervises banks, credit unions, building societies, insurers and superannuation funds. APRA sets prudential standards and expectations, such as the serviceability buffer lenders use when assessing home loans. It does not handle individual consumer complaints; those go to the lender and then AFCA.

Arrears

Repayments that are overdue. Being in arrears can lead to late fees, a repayment history entry on your credit report and, if it continues, a default. If you are falling behind, contact your lender early and ask about a hardship variation.

ASIC (Australian Securities and Investments Commission)

The regulator responsible for consumer credit, financial services and company registration. ASIC issues Australian Credit Licences, enforces responsible lending obligations and runs the Moneysmart website. You can check whether a lender or broker is licensed on ASIC's professional registers.

Asset finance

An umbrella term for loans and leases used to buy vehicles, machinery, technology and other equipment, where the asset itself usually acts as security. Common forms include chattel mortgages, hire purchase and finance leases. See our car and equipment finance guidance for how the options compare.

Australian Credit Licence (ACL)

A licence issued by ASIC that allows a business to provide consumer credit or credit assistance, such as recommending a particular loan. Lenders and brokers either hold an ACL or act as an authorised credit representative of a licensee. Hobart Loans does not hold an ACL; where a reader wants credit, we may refer them to a licensed broker or lender, as explained on our About us page.

B

Balloon payment

A lump sum due at the end of a loan, usually in car and equipment finance, that lowers the regular repayments during the term. The trade-off is that you pay more interest overall because the balance stays higher for longer, and you need a plan to pay or refinance the balloon when it falls due. Our car and equipment finance guidance covers how to weigh this up.

BAS (Business Activity Statement)

A form businesses registered for GST lodge with the ATO, usually monthly or quarterly, to report GST and other tax obligations. Lenders often ask for recent BAS statements to verify turnover, particularly for low-doc loans. Up-to-date lodgements are a good sign to a business lender.

Borrowing capacity

The maximum amount a lender is willing to lend you, based on your income, expenses, existing debts, credit history and its own policies. It is calculated using the serviceability buffer, so it is usually lower than what you might work out from the actual interest rate. Different lenders can give quite different answers for the same person.

Break cost

A fee a lender may charge if you repay, refinance or switch a fixed-rate loan before the fixed period ends. It reflects the lender's loss when market rates have moved since you fixed, and it can be substantial on large loans. Always ask for a break cost estimate before refinancing a fixed loan.

Bridging loan

Short-term finance that lets you buy a new property before you have sold your current one. Interest typically accrues on the combined debt until the sale settles, and the loan is then reduced to the end debt. Read Bridging loans: how to buy your next home before you sell for a step-by-step explanation.

Broker (finance or mortgage broker)

A credit professional who compares loans from a panel of lenders and helps you apply. Brokers must hold an Australian Credit Licence or be authorised representatives, and mortgage brokers must act in your best interests under the best interests duty. Brokers are usually paid commissions by lenders, which they must disclose.

C

Cash flow

The timing of money coming into and going out of a household or business. A profitable business can still struggle if customers pay slowly while bills fall due. Lenders look closely at cash flow because it shows whether repayments can be met on time.

Chattel mortgage

A common business finance product for vehicles and equipment where you own the asset from the start and the lender takes a mortgage over it as security. Repayments may include a balloon. A GST-registered business may be able to claim GST credits on the purchase price, so check the tax treatment with your accountant or the ATO. Our guide to types of business finance compares it with leases and hire purchase.

Comparison rate

A single percentage that combines the interest rate with most upfront and ongoing fees, so you can compare the cost of consumer loans more fairly. It is calculated on a standard loan amount and term set by regulation, so it may not reflect the cost of your exact loan, and it excludes some charges such as government fees and break costs. Use it as a starting point, not the final word.

Comprehensive credit reporting

The Australian credit reporting system that records positive as well as negative information, including whether you made repayments on time each month. Good repayment history can help your credit score, while missed payments can be visible for a period. It means paying every bill on time matters more than it once did.

Construction loan

A home loan for building or major renovation where funds are released in stages (progress payments) as the work is completed. Interest is usually charged only on the amount drawn so far. Lenders typically want a fixed-price building contract, plans and council approvals before approving.

Credit file (credit report)

The record a credit reporting body holds about you, including credit enquiries, accounts, repayment history and any defaults or court judgments. You are entitled to a free copy from each credit reporting body at regular intervals. Checking your own file does not hurt your score; see how lenders assess loan applications for what they look for.

Credit limit

The maximum you can draw on a credit card, overdraft or line of credit. Lenders often count the full limit, not just your current balance, when assessing a new application. Reducing unused limits can improve your borrowing capacity.

Credit reporting body

An organisation that collects credit information and provides credit reports and scores to lenders. The main credit reporting bodies in Australia are Equifax, Experian and illion. Each may hold slightly different information, so it is worth checking all three before a major application.

Credit score

A number calculated by a credit reporting body that summarises how risky you may be as a borrower, based on your credit file. Each bureau uses its own scale, so scores from different bureaus are not directly comparable. Lenders also use their own internal scoring, so a score is only one part of the picture. A free loan-readiness review can help you understand what lenders may see.

Cross-collateralisation

Using more than one property as security for one or more loans with the same lender. It can help with buying another property without a cash deposit, but it can make selling or refinancing one property more complicated because the lender has a say over all the securities. Many borrowers prefer standalone security where possible.

D

Debt consolidation

Combining several debts, such as credit cards and personal loans, into one loan with a single repayment. It can simplify budgeting and may lower the interest rate, but stretching debts over a longer term can increase total interest paid. See our debt consolidation planning service for the questions to ask first.

Debt-to-income ratio (DTI)

Your total debt (including credit limits and the new loan) divided by your gross annual income. Lenders use DTI as a quick measure of how stretched a borrower is, and many treat high ratios with extra caution. Paying down or closing debts lowers your DTI.

Default

A failure to meet the terms of a loan, most often by missing repayments. A default can be listed on your credit file once an overdue amount meets the legal thresholds and required notices have been sent, and it can stay there for years. Contacting your lender as soon as you foresee trouble gives you more options.

Deposit

The part of a purchase price you pay from your own funds rather than borrowing. A bigger deposit lowers your LVR, can help you avoid LMI and may give you access to sharper rates. For home loans, lenders may also ask to see a history of genuine savings.

Deposit bond

A guarantee, issued by an insurer or financial provider for a fee, that can be given to the seller instead of a cash deposit when you sign a property contract. The full deposit is still payable at settlement. It can be useful when your funds are tied up, for example until another property sells.

Discharge fee

A fee charged when you pay off a loan in full and the lender releases its security, such as a mortgage over a property. It is usually a fixed administrative fee, plus any government registration charges. Factor it in when comparing the cost of refinancing.

E

End debt

In a bridging loan, the balance left after your existing property sells and the sale proceeds are applied. Lenders assess whether you can afford repayments on the end debt. A realistic sale price estimate is essential, because a lower sale price means a higher end debt.

Equipment finance

Finance for business equipment such as vehicles, tools, machinery, IT or medical equipment, usually secured by the equipment itself. Because the asset provides security, rates are often lower than for unsecured business loans. Our car and equipment finance guidance explains how to prepare.

Equity

The difference between what an asset is worth and what you owe on it. For example, a home valued at $600,000 with a $400,000 loan has $200,000 of equity. Lenders may let you borrow against part of your equity, usually within a maximum LVR.

Establishment fee

A one-off fee charged when a loan is set up, sometimes called an application or setup fee. It may be paid upfront or added to the loan balance. Establishment fees are included in the comparison rate, which is one reason to compare comparison rates rather than headline rates.

F

Finance lease

An arrangement where a financier buys an asset and leases it to your business for a set term in return for regular rentals. The financier owns the asset, and there is usually a residual value to pay at the end if you want to keep it. Tax treatment differs from a chattel mortgage, so get advice from your accountant.

Financial hardship

A situation where you are temporarily or permanently unable to meet your repayments, for example because of illness, job loss or a relationship breakdown. Lenders must consider hardship requests under the National Credit Code for regulated loans. Free help is available from financial counsellors through the National Debt Helpline.

Fixed rate

An interest rate that stays the same for an agreed period, commonly one to five years, giving certainty over repayments. Fixed loans often limit extra repayments and offset features, and you may face a break cost if you exit early. At the end of the fixed period the loan usually reverts to a variable rate.

G

Genuine savings

Money you have built up yourself over a period of time, such as regular savings held for several months. Some home lenders require part of the deposit to be genuine savings when the LVR is high, as evidence that you can manage regular repayments. Policies vary, so check with the lender or a broker.

GST (Goods and Services Tax)

A 10% tax on most goods and services sold in Australia. Businesses registered for GST charge it on sales and can usually claim credits for GST on business purchases, which affects how different finance options are treated. Check your situation with your accountant or the ATO.

Guarantor

A person, often a parent, who agrees to be responsible for some or all of a loan if the borrower cannot pay, sometimes by offering equity in their own property as security. Being a guarantor is a serious commitment: the guarantor's home can be at risk. Anyone asked to guarantee a loan should get independent legal advice first.

H

Hardship variation

A change to your loan terms, such as reduced repayments, a payment pause or an extended term, granted because you are in financial hardship. For regulated consumer loans you can ask for one under the National Credit Code, and the lender must respond within set timeframes. Interest generally keeps accruing, so ask how the change affects the total cost.

HEM (Household Expenditure Measure)

A benchmark of typical household living costs, based on household size and income, that many lenders use when assessing applications. If your declared expenses are below the benchmark, the lender may use the HEM figure instead. Being honest and accurate about your actual spending is still essential.

Hire purchase

A finance arrangement where the financier buys an asset and you hire it for a set term, with ownership passing to you once the final payment is made. It is commonly used for business vehicles and equipment. Compare it with a chattel mortgage, where you own the asset from the start.

Honeymoon rate

A discounted introductory interest rate for the first part of a loan, often the first year or two. After it ends, the loan moves to a higher revert rate. Look at the comparison rate and the revert rate, not just the introductory rate.

I

Interest

The cost of borrowing money, charged as a percentage of the outstanding balance. Most Australian loans calculate interest daily and charge it monthly. The longer you take to repay, the more interest you pay overall; see Long-term loans explained.

Interest-only

A loan or period during which repayments cover only the interest, so the balance does not go down. Interest-only periods lower repayments in the short term but increase total interest, and repayments jump when the period ends. Lenders assess whether you can afford the higher principal and interest repayments that follow.

Invoice finance

Business finance that advances a percentage of the value of your unpaid customer invoices, improving cash flow while you wait to be paid. The two main forms are invoice discounting, where you still collect payments, and factoring, where the financier may manage collection. Fees vary widely, so compare the total cost carefully; see business loan matching for how to prepare.

L

Lenders mortgage insurance (LMI)

Insurance that protects the lender, not you, if you default and the property sells for less than the debt. LMI is typically charged when the LVR is above 80%, and the premium is often added to the loan. Our home loan readiness review can help you understand how your deposit affects LMI.

Line of credit

A flexible facility that lets you draw and repay funds up to an approved limit, paying interest only on what you use. Home equity lines of credit are secured by property, while business lines of credit may be secured or unsecured. Without discipline, the balance can stay high indefinitely.

Loan term

The length of time over which a loan is repaid. A longer term means lower regular repayments but more total interest; a shorter term costs more each month but less overall. Try different terms in our loan calculator to see the trade-off.

Loan-to-value ratio (LVR)

The loan amount as a percentage of the lender's valuation of the security property. For example, a $400,000 loan on a property valued at $500,000 is an 80% LVR. LVR affects whether LMI applies, the rate you are offered and how much you can borrow.

Low-doc loan

A loan for self-employed borrowers who cannot easily provide standard income evidence such as recent tax returns. Lenders instead rely on alternatives such as BAS statements, business bank statements or an accountant's declaration. Low-doc loans often have higher rates or lower maximum LVRs, and lenders must still meet responsible lending obligations.

M

Moneysmart

ASIC's free consumer website, which offers independent guides and calculators on loans, budgeting, credit and investing. It is a good place to check general information and to look up official explanations of products. Visit moneysmart.gov.au.

Mortgage

Strictly, a mortgage is the security interest a lender registers over a property, though in everyday use it means a home loan. The mortgage gives the lender the right to sell the property if the loan is not repaid. It is removed (discharged) when the loan is paid off.

N

National Credit Code

Schedule 1 of the National Consumer Credit Protection Act 2009, setting rules for consumer credit contracts, including disclosure, interest and fee calculations, hardship variations and enforcement. It generally applies to credit for personal, domestic or household purposes and residential investment property. Most business-purpose loans fall outside it.

NCCP (National Consumer Credit Protection Act 2009)

The federal law that regulates consumer credit in Australia, including credit licensing, responsible lending obligations and the National Credit Code. It is administered by ASIC. If a loan is covered by the NCCP, you have important protections such as access to hardship variations and external dispute resolution.

Negative equity

When you owe more on a loan than the asset is worth. It is common with new cars, which can lose value quickly, and can occur with property if values fall. It matters if you need to sell, refinance or if a vehicle is written off; see what happens to your loan if your vehicle is written off.

O

OAIC (Office of the Australian Information Commissioner)

The national regulator for privacy, including the rules on how credit reporting bodies and lenders handle your credit information. If a credit reporting complaint is not resolved by the organisation involved, you may be able to take it to the OAIC or AFCA. Our privacy policy explains how Hobart Loans handles your information.

Offset account

A transaction account linked to a home loan, where the balance is offset against the loan before interest is calculated. For example, $20,000 in an offset against a $400,000 loan means interest is charged on $380,000. Offset accounts can come with higher fees or rates, so check whether your likely balance makes it worthwhile.

Overdraft

A facility attached to a business or personal transaction account that lets you go below zero up to an approved limit. Interest is charged on the overdrawn balance, and there may be a fee for the limit itself. Business overdrafts are commonly used to smooth short-term working capital gaps.

P

Peak debt

In a bridging loan, the total amount owed while you hold both properties: your existing loan, the new purchase, costs, and often capitalised interest. Lenders limit peak debt relative to the combined value of both properties. Our bridging and short-term finance guidance explains how peak and end debt work together.

Personal guarantee

A promise by a company director or business owner to personally repay a business debt if the business cannot. It means your personal assets, potentially including your home, can be pursued. Many small business loans require one, so read the guarantee carefully and get legal advice.

Personal loan

A loan for personal purposes, such as a car, renovation, wedding or debt consolidation, usually with a fixed term of one to seven years. Personal loans can be secured or unsecured and have fixed or variable rates. Compare options in our personal loan comparison guide.

Pre-approval (conditional approval)

An indication from a lender of how much it may lend you, given before you have found a specific property or asset. It is subject to conditions such as a satisfactory valuation and verification of your details, and it expires after a set period. It is not a guarantee of final approval. Our home loan readiness review explains how to prepare for it.

Principal

The amount you borrowed, or the part of the balance that is not interest or fees. Repayments that reduce principal build your equity. Extra repayments generally go straight to principal, which reduces future interest.

Principal and interest

The standard repayment type where each repayment covers interest and also reduces the loan balance, so the loan is fully repaid by the end of the term. Principal and interest loans often attract lower rates than interest-only loans. Over time the share of each repayment going to principal increases.

R

RBA cash rate

The Reserve Bank of Australia's target interest rate for overnight loans between banks, set by the RBA's monetary policy board. Changes in the cash rate influence variable lending rates, though lenders decide their own rates. For the current figure, check rba.gov.au.

Redraw

A loan feature that lets you withdraw extra repayments you have made ahead of schedule. Unlike an offset account, money in redraw has already reduced the loan balance, and lenders may set minimum amounts, fees or limits on access. Some lenders can change redraw availability, so do not rely on it as an emergency fund without checking the terms.

Refinancing

Replacing an existing loan with a new one, either with the same lender or a different one, to get a better rate, features, or to access equity or consolidate debts. Weigh any savings against costs such as discharge fees, establishment fees, break costs and possibly LMI. A new application also means a new credit enquiry.

Residual value

The amount left to pay at the end of a lease or hire arrangement, similar to a balloon payment. A higher residual lowers regular payments but leaves a larger sum due at the end. Make sure the residual is realistic compared with what the asset is likely to be worth.

Responsible lending

The obligations under the NCCP that require lenders and brokers to make reasonable inquiries about your situation, verify it, and assess that a consumer loan is not unsuitable for you. This is why lenders ask for payslips, bank statements and details of expenses. ASIC's guidance on these obligations is available at asic.gov.au.

Revert rate

The rate a loan moves to after a fixed or introductory period ends. It is often higher than the rate you started on. Diarise the end date and review your options before the switch happens.

S

Secured loan

A loan backed by an asset, such as a car or property, that the lender can sell if you do not repay. Because the lender's risk is lower, secured loans usually have lower interest rates than unsecured loans. The asset is at risk if you default.

Security

The asset a lender holds a legal interest in to protect itself if a loan is not repaid, such as a registered mortgage over a property or a security interest over a vehicle. Interests in vehicles and equipment are usually registered on the Personal Property Securities Register (PPSR). Always check what security you are offering before signing.

Serviceability

A lender's assessment of whether you can afford the repayments on a loan, using your income, living expenses, existing debts and a buffered interest rate. It is one of the main factors in how much you can borrow. Our article on how lenders assess your loan application explains the 5 Cs of credit.

Serviceability buffer

An extra margin added to a loan's interest rate when a lender tests whether you could afford repayments if rates rose. APRA sets an expectation for the minimum buffer banks use on home loans and can change it, so check APRA's current guidance. The buffer is why your assessed borrowing capacity is usually lower than a simple calculation suggests.

Settlement

The day a property purchase, sale or refinance is completed: funds are exchanged, the loan is drawn down and ownership or security is transferred. In Australia most property settlements now happen electronically. Arrange your deposit, loan approval and insurance well before the settlement date.

Small amount credit contract (SACC)

A short-term consumer loan of $2,000 or less, often called a payday loan, with special rules on fees and terms. SACCs can be very expensive compared with other credit. Before taking one, look at alternatives such as hardship arrangements, Centrelink advances or no-interest loan schemes.

Split loan

A home loan divided into portions with different rate types, commonly part fixed and part variable. It balances certainty with flexibility, since the variable portion can usually have extra repayments and an offset. Each portion is managed under its own terms.

Stamp duty (transfer duty)

A state or territory tax charged when you buy property and certain other assets. Rates, concessions and exemptions differ in each state; in Tasmania, duty is administered by the State Revenue Office. Duty is a significant upfront cost, so include it in your budget alongside the deposit, legal fees and any LMI.

T

Term loan

A business loan for a set amount, repaid in regular instalments over a fixed term. Term loans suit one-off investments such as a fit-out, expansion or buying a business. See business loan matching and our guide to borrowing to grow a small business.

Total cost of credit

The full amount you will pay over the life of a loan beyond the amount borrowed, including all interest and fees. Two loans with similar repayments can have very different total costs if their terms differ. Example: an illustrative $30,000 loan at 9% p.a. costs about $4,344 in interest over three years but about $7,365 over five years.

U

Unregulated credit

Credit that is not covered by the National Credit Code, most commonly loans made wholly or predominantly for business or commercial investment purposes. Borrowers have fewer statutory protections, so contract terms matter even more. Lenders usually ask you to sign a declaration confirming the business purpose.

Unsecured loan

A loan not backed by a specific asset, such as most credit cards and many personal loans. Because the lender's risk is higher, rates are usually higher and amounts lower than for secured loans. Approval depends heavily on your income, credit history and existing debts.

V

Valuation

An assessment of a property's value carried out for the lender, usually by an independent valuer. The lender's valuation, which can be lower than the purchase price, is used to calculate the LVR. If it comes in low you may need a larger deposit or to pay LMI.

Variable rate

An interest rate that can go up or down over the life of the loan, often in response to changes in the RBA cash rate and lenders' funding costs. Variable loans usually allow extra repayments, redraw and offset. Before choosing variable, check that your budget could cope if repayments rose.

W

Working capital

The money a business has available to run day-to-day operations, usually current assets minus current liabilities. Seasonal businesses, which are common in Tasmania's tourism and agriculture sectors, may need short-term finance to cover quieter months. Overdrafts, lines of credit and invoice finance are common working capital tools; see types of business finance in Australia.

Write-off (total loss)

When an insurer decides a damaged vehicle is not worth repairing and pays out its insured value instead. If the payout is less than the loan balance, you still owe the difference to the lender. Our article on vehicles written off explains your options.