Understanding Finance Terms: A Beginner’s Guide to Loans in Australia

Finance & Loan Glossary

APR (Annual Percentage Rate)
The yearly cost of borrowing, including interest and standard fees – useful when comparing personal, car, or business loans.

Application Fee
A one-off fee charged by lenders when applying for a loan, common with home and business loans.

Balloon Payment
A large final payment often used in car loans or business loans to reduce ongoing repayments.

Broker
A third party who compares lenders and helps you find a suitable personal, home, or business loan.

Car Loan
A specific type of loan used to purchase a new or used vehicle, either secured or unsecured.

Comparison Rate
Reflects the true cost of a loan, combining interest and fees – crucial for comparing personal and home loans.

Credit Score
A number that shows your creditworthiness – impacts your ability to get approved for personal, home, car, or business loans.

Debt Consolidation Loan
A personal loan used to combine multiple debts into one repayment, often with a lower interest rate.

Deposit
The upfront payment made when buying a home or car – usually a percentage of the total value.

Equity
The value you own in your home or business asset after subtracting the loan balance.

Fixed Rate Loan
An interest rate that stays the same for a set period – common in home and personal loans.

Guarantor
A person who agrees to repay your loan if you default – often used for car or personal loans with limited credit history.

Home Loan / Mortgage
A loan used to buy property – may be fixed or variable, and secured by the property itself.

Interest Rate
The cost of borrowing, expressed as a percentage – varies based on loan type and credit history.

Lender
A bank, credit union, or private finance provider offering loans.

LVR (Loan-to-Value Ratio)
Used in home loans – shows the loan amount compared to the property’s value. A lower LVR often means better rates.

Offset Account
Linked to a home loan to reduce the interest payable by offsetting the loan balance with savings.

Personal Loan
A loan for general personal use – can be secured or unsecured, and used for things like travel, weddings, or medical bills.

Pre-Approval
Initial loan approval based on a preliminary review – useful for home or car buyers.

Principal
The amount borrowed before interest and fees are applied.

Redraw Facility
Lets you access any extra repayments you’ve made on home or some personal loans.

Refinancing
Replacing your existing loan with a new one, often to get a better interest rate or terms – used across all loan types.

Repayment Term
The length of time over which a loan is repaid – shorter terms usually mean higher repayments but less interest.

Secured Loan
Backed by an asset (like a home or car), which lowers risk for the lender and can reduce interest rates.

Unsecured Loan
Not tied to any asset – often used for personal loans or small business loans, typically with higher interest rates.

Variable Rate Loan
An interest rate that can go up or down over time – common in home loans and business finance.