Car Finance Glossary

This glossary is intended to provide you with an easy to understand explanation of common terms used in the financial services industry. Note that this glossary does not provide legal definitions.

A | B | C | D | E | F | G | H | I | J | K | L | M | N | O | P | Q | R | S | T | U | V | W | X | Y | Z

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ABN (Australian Business Number) - a number issued by the Australian Tax Office (ATO) to registered businesses in Australia. This number must be displayed on official paperwork and transactions for tax purposes.

Account balance - see balance.

Account number - a unique number that the bank allocates to your account.

Accruals basis - transactions that are recorded when there has been an actual exchange of goods or services. Also known as Invoice Basis.

Accrued interest - interest that is owed, but isn't yet due to be charged or paid.

Acquisitions - includes items an individual buys, such as goods, services or equipment, for their enterprise.

Additional repayments - any money paid into a loan in addition to the prescribed minimum repayments.

Administration fee - a monthly fee that is charged for providing services and managing an account.

Amortisation period - the time you have to repay a loan at the arranged terms.

Amount due - the amount of money that has to be paid on an outstanding account.

Application fee - a fee charged for setting up a loan.

APR (Annual Percentage Rate) - the rate at which interest is charged on money that is owed over a one year period. Interest is usually calculated daily and may be charged monthly, quarterly or annually.

Arrears - the amount of money that has not been paid by its due date.

ASIC (Australian Securities and Investments Commission) - an Australian government body that regulates banks and other financial companies.

Asset (Secured) - an asset that has been provided by you to secure a loan.

ATO - the Australian Taxation Office.

Attribution - rules which determine when a GST liability or an input tax credit entitlement arises in respect of a supply.

Automatic deduction - see direct debit.

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Balance (Final/Closing) - the amount of money in a bank account at the end of a certain period of time.

Balance sheet - an enterprise's statement of its assets, liabilities and net equity.

Balloon payment - a large repayment, usually made at the end of an agreement to pay off a loan.

Bankruptcy - a legal process affecting individuals who are unable to pay their debts. A bankrupt person gives control of most of the debts and assets to a bankruptcy trustee who then decides which assets (if any) can be sold to pay off the debts.

BAS (Business Activity Statement) - used by businesses to report their tax entitlements and obligations, including the amount of GST they have received and paid.

Borrower - a person who has borrowed money from a bank or other lender. Also called a debtor.

BPAY® - a service that allows Australians to pay their bills using their credit cards or from their bank accounts using internet banking or phone banking. BPAY® is registered to BPAY Pty Ltd ABN 69 079 137 518.

Break costs - charges for paying off a (generally fixed interest) loan before the end of its term.

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Capitalising (or capitalised) interest - where interest owed is accrued and added to the total debt rather than being paid on a regular basis.

Car Finance - see Vehicle Leasing, Commercial Hire Purchase (CHP), Chattel Mortgage, Salary Packaging / Novated Lease, Car Loans and Personal Loans.

Cash basis - an accounting method in which transactions are recorded only once a payment or receipt of cash is made.

Chattel Mortgage - a Chattel Mortgage is 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. See also Vehicle Leasing, Commercial Hire Purchase (CHP), Salary Packaging / Novated Lease, Car Loans and Personal Loans.

Chattels - personal property. Real chattels are buildings and fixtures, personal chattels are clothes and furniture.

Co-borrower - an individual who borrows money jointly with you. Each individual is jointly and separately responsible for the repayment of the loan. Therefore, if one person does not pay the other person will be required to pay the full amount of the loan.

Commercial Hire Purchase - a Commercial Hire Purchase (CHP) Agreement is a contract under which the vehicle, owned by the financier, is hired to another person upon payment of a fixed rental. See also Vehicle Leasing, Chattel Mortgage, Salary Packaging / Novated Lease, Car Loans and Personal Loans.

Comparison rate - helps you identify the true cost of a loan. It takes into account the interest rate, loan set-up costs, the term of the loan, and any other up-front or ongoing fees associated with a loan.

Compound interest - interest that is paid on both the accumulated interest as well as on the original principal.

Consumer - an individual who buys or uses products or services.

Consumer Credit Code - the law that regulates consumer lending transactions in Australia. Lenders such as banks are obliged to tell you what your rights and obligations are in any transaction. Credit transactions made predominately for business or investment purposes are not governed by the Consumer Credit Code.

Contract - a legally enforceable agreement.

Credit - money that a lender gives a borrower based upon a promise to pay it back in the future. A person taking either secured or unsecured credit usually has to pay interest on the borrowed money plus fees and charges in addition to the principal payment.

Credit file - a file that is kept by a credit agency (such as Veda Credit Advantage) which shows your credit history. If you have failed to meet your repayment obligations in the past and defaulted on a loan or credit card, your credit file may show a 'default'. Defaults may make it difficult for you to borrow money from some lenders.

Credit history - see credit file.

Credit rating - a 'credit rating' is a popular misconception. Rather than a rating, an individual's credit file shows their credit history including any defaults. Depending on a lender's finance approval criteria, one or more defaults may result in refusal to lend money.

Credit report - a report by an authorised credit reporting agency which details your credit history. A lender needs permission from you to obtain a credit report. Also known as a Credit Reference.

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Debit - most commonly a withdrawal from a bank account.

Debt - an obligation by an individual or organisation to pay a specific amount of money to another individual or organisation.

Debtor - someone who owes money. The opposite of creditor.

Default - occurs when a person fails to meet the terms or requirements of a signed contract, such as not making scheduled repayments on a loan.

Default rate - the interest rate used when payments are not made or the facility goes above its limit.

Deferred establishment fee - may be charged when a loan is paid off before a set period has elapsed - within three years, for example.

Depreciation - the writing-down of the cost of an asset over its estimated life.

Direct debit - an electronic payment that is made directly from a bank account, usually at a specified time on a pre-requested date.

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Early termination charges - fees incurred by paying off a loan early.

Encumbrance - an outstanding liability or charge on a property.

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 difference between an asset's current market value and any debt or claim against it.

Exit fees - see break costs.

Expenses - your everyday expenditure, such as food, transport, housing, clothing and entertainment.

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Facility agreement - see loan agreement.

Financial Services Guide - provides you with information to assist you in making an informed decision on whether you want to use the products or services of a financial services provider.

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. See also Commercial Hire Purchase (CHP), Chattel Mortgage, Salary Packaging / Novated Lease, Car Loans and Personal Loans.

Fixed interest - an interest rate that is set for an agreed term.

Fixed term loan - a loan that you must repay within a certain time.

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.

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Government charges - these vary for each state and territory and include stamp duty and mortgage registration fees.

GST (Goods and Services Tax) - a tax levied on the supply of goods and services.

Guarantee - a legal contract accepting responsibility for discharging another's liabilities, such as the payment of a debt.

Guarantor - a party who has legally agreed to be responsible for the payment of another party's debts.

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Hire Purchase - a Hire Purchase (HP) Agreement is a contract under which the vehicle, owned by the financier, is hired to another person upon payment of a fixed rental.

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Income - the total amount of money you earn, including wages, rental income, interest and government allowances. For a business or a company, income is revenue less expenses.

Input tax credit - when you pay GST on taxable supplies for use in your business, you can usually claim these amounts back from the ATO.

Input taxed supplies - supplies which do not have any GST charged on them. The supplier is not entitled to input tax credits on these acquisitions.

Interest - the amount a lender charges a borrower for the use of the lender's money, or the amount earned through depositing funds with a financial institution in an interest bearing facility.

Interest adjustment - an adjustment sometimes made by banks or other financial institutions, which arises when a customer seeks to break a fixed term contract (either for a loan or a term deposit).

Interest in advance - when interest is charged at the beginning of a period of time. Generally only available for investment purposes on fixed rate loans.

Invoice - a bill that needs to be paid for products or services received.

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Joint debt - when two or more people borrow money or incur a debt together. Unless the contract limits the amount each party must pay, the lender can recover payment of the whole amount from either party.

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Lease - see Finance Lease.

Legal entity - an individual or organisation that has the capacity to be held legally accountable such as an individual person, a corporate body or an incorporated body.

Liability - See debt.

Lien - the right to use property as security for a debt or loan.

Liquidity - the measurement of how quickly and easily an asset can be converted into cash with no or minimal loss.

Loan - money that is lent to a person for an agreed term. At the end of the term the money must be repaid, usually with added interest.

Loan agreement - a formal contract between a borrower and a lender which sets out the terms and conditions of the loan. Also known as a Facility Agreement.

Loan approval fee - a fee payable once a loan has been approved by a lender.

Loan maintenance fee - an ongoing management fee charged over the life of the loan. Normally charged monthly.

Low documentation loan - a loan generally for self-employed people who may not have the financial documents normally required to obtain a loan.

Lump sum payment - a single, usually large payment towards a loan in addition to your regular scheduled repayments.

Luxury car - The cost of the vehicle exceeds the 'luxury tax limit', currently $57,009, as determined by the Australian Tax Office (ATO).

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Maturity - the date a debt or investment must be paid in full.

Minimum repayment - the minimum amount required to be paid on an invoice or a loan.

Monthly service fee and monthly account fee - a fee which is charged each month to maintain your account and varies depending on the type of account.

Mortgage - the charge or assignment of property to secure the payment of a debt and where the property is redeemable upon payment.

Mortgage Stamp Duty - a State Government tax based on the dollar value of a mortgage.

Mortgagee - the lender of funds to buy property secured by a mortgage.

Mortgagor - the person borrowing money with a mortgage.

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Net worth - simply put, this is the value of your assets less how much you owe on them.

Novated Lease - a Novated Lease is an agreement where an employer agrees to meet the repayments of a lease while the employee remains employed, such as a car lease. The employee then sacrifices part of their salary to cover the cost of the finance. See also Vehicle Leasing, Commercial Hire Purchase (CHP), Chattel Mortgage, Car Loans and Personal Loans.


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Offer to purchase - a legal agreement specifying the price for the purchase of property or goods.

Option to buy - a legally binding document giving someone the right to buy something - usually within a specific period - at a specific price.

Original documents - paperwork or documents that display original signatures and have not been reproduced, i.e. not photocopied or faxed.

Overdue - an amount of money that has not been paid by the due date and is still outstanding.

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PAYG (Pay As You Go) - a system for reporting and withholding amounts of money for income tax purposes. If you have employees, you're required to withhold tax from payments you make to them.

PDS (Product Disclosure Statement) - a document (or group of documents) which describes a financial product or service, including the features, benefits, cost and associated risks.

Personal loan - a type of loan that is used for purchases like a car, boat or a holiday. Money is lent to you for a fixed period, at a variable or fixed rate of interest and repayments are calculated at the start of the loan.

Pre-approval - a process which provides an initial estimate of how much can be borrowed based on information supplied to the bank. Also known as Approval in Principle.

Prepayment - additional payment(s) made under a loan that are over and above the payments specified under the loan contract.

Principal - the amount of capital deposited or borrowed, upon which interest is paid or charged.

Principal and interest loan - a loan where the principal and the interest are repaid together for the term of the loan.

Private sale - a Private Sale is where property is sold directly by the owners, not through a licensed dealer.

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Rebate - an amount of money that is returned or refunded.

Records- financial documents and paperwork.

Refinancing - Refinance by replacing, restructuring or adding to an existing loan to obtain a lower interest rate, consolidate debts or lengthen maturities etc.

Registered entity - an entity that is registered for GST.

Repayment - money paid by a borrower to a lender. Principal and interest repayments include both the interest due and a component of the principal amount borrowed.

Repossession - occurs when a borrower cannot repay a loan and the lender takes possession of any assets or investments that have been provided as security.

Residual value - the estimated value of the leased vehicle at the end of the lease term.

Risk - exposure to the chance of loss when investing over time. Lower risks are normally associated with lower returns.

Risk profile - the amount of risk you are prepared to take for the prospect of earning a higher return.

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Salary Packaging - Salary Packaging is 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.

Savings - money that is set aside for use at a later time. See term deposit.

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 - usually the property or goods purchased with the loan funds - that can be sold by a lender if the debt is not repaid in full.

Servicing - meeting principal, interest and other payments on a loan.

Settlement date - the date when the new owner makes a final payment and takes possession of the property or goods.

Shareholder - someone who provides a portion of a company's capital and then receives a share of the company's profit in the form of dividends.

SOA (Statement of Advice) - your formal record of the products and/or services we recommend to you, based on our understanding of your needs, objectives and financial circumstances.

Stamp Duty - a Government charge on certain financial transactions. For example, stamp duty is payable by the buyer on a transfer of land when a property is sold. The amount varies for each state and territory.

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Tax File Number (TFN) - a nine digit number issued by the Australian Taxation Office to Australian residents and registered companies to identify them for taxation purposes.

Tax invoice - a document issued by a supplier showing a price and the amount of GST (if any). It must include the supplier's ABN.

Tax period - an accounting period of one or three months (depending on annual turnover) which applies to GST and Business Activity Statements. Quarterly tax periods end on 31 March, 30 June, 30 September and 31 December. Monthly tax periods end on the final day of each month.

Taxable supplies - include most goods and services sold by an enterprise. However, GST-free or input taxed supplies are not taxable.

Term - a period of time, such as the time in which a loan must be repaid.

Terms and conditions - details which outline specific obligations of each party with regards to a contract, transaction or product.

Transactions - movements of money, such as deposits, withdrawals or transferring between accounts.

Transfer - a document confirming a change of ownership.

Trust - an entity created to hold assets for the benefit of certain individuals or groups and managed by a trustee.

Trust account - an account usually used by professionals such as lawyers, accountants and stockbrokers to manage their clients' money.

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Unencumbered - a property free of liabilities, encumbrances or restrictions.

Unsecured loan - a loan where the borrower does not offer security to the lender.

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Variable interest - where the interest rate may go up and/or down during the term of the loan.

Variable interest rate- a rate that generally goes up and down according to the fluctuations in market rates.

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