Glossary

Your Annual Percentage Rate, or APR, will be given as a percentage. Your APR is effectively your finance charge, as it’s the amount you will repay on top of your principal borrowing.
It’s important to note that your APR does not include things like the establishment fee, monthly fee, or any other charges.
Instead, you should look at your comparison rate. This includes all fees the lender will charge you and tell you the true cost of your loan.

If your credit file shows a history of late or missed payments, lenders might perceive you as having bad credit, or bad credit history. If you use credit cards and these are always close to maxed out, this may also result in bad credit. Bad credit will usually reflect itself by way of a low credit score.
Individuals with bad credit will usually find it more difficult to acquire credit or find that any offers they receive have higher interest rates.

A balloon loan is a loan that leaves you with a lump sum payment at the end of the loan term. Car loans are typical examples of borrowing that might be a balloon loan. At the end of the loan period, you usually either choose to make the lump-sum payment or can refinance the remaining balance into another loan.
When getting a balloon loan, you should be aware that if you choose to refinance, you may not get the same interest rate as you were previously getting on the initial loan.

Bankruptcy is when a court legally declares you unable to pay your creditors. If you default on a personal loan or another financial product, a creditor may aim to have you declared bankrupt as a means of reclaiming some of their cash. It’s also possible to enter voluntary bankruptcy. While bankruptcy will ruin your credit file in the short term, it is a chance for you to wipe your financial slate clean and start again.

The commence date is the date your loan starts, usually the date you receive the funds into your bank account.

The comparison rate is your interest rate plus most additional fees that a lender builds into your loan. The comparison rate is the best way to assess different lenders’ loan products. Lenders who offer a lower interest rate may have a higher fees schedule, resulting in a higher comparison rate.

The introduction of CCR in 2017 changed the way credit reporting bodies calculate credit scores. This change can mean you are rewarded for positive credit performance rather than only being punished for negative aspects of your credit file, as was the case before.

Receiving a conditional offer means a lender has approved your loan application, subject to the conditions they set out. Usually, such conditions will relate to you providing the necessary identity documentation and evidence, such as payslips, of your employment and income.

A credit check is a process conducted by a lender to assess the suitability of your application. Some lenders will use your credit score as the main and in some cases, the only factor. However, others will look more closely at your credit history and comprehensive credit reporting (CCR) information. Once a lender conducts their credit check, they will decide whether to accept or decline your application.
Some lenders may also refer to conducting a soft enquiry or hard enquiry.

Your credit score, sometimes called your credit rating, is a summary, expressed as a number. Your credit score highlights your creditworthiness to lenders based on the content of your credit history. Different credit reporting bodies may calculate your credit score differently, with additional or less weighting applied to specific factors.

Your credit utilisation rate is the percentage of your available credit that you’re using at a given time. For example, if you had credit cards with a combined credit limit of $30,000, with a total balance of $15,000 across these, your credit utilisation rate would be 50%.
A higher credit utilisation rate can signify difficulty in managing your finances and may negatively influence your credit score. Lenders who look specifically at your credit history will usually pay attention to this factor, too.

Debt consolidation is a type of refinancing where you take out a loan to repay your current debts. If you don’t take on more credit obligations, this will leave you with one repayment to make rather than several. Debt consolidation may also reduce your interest rate, your overall repayments, and the time it takes to become debt-free.

Your debt to income ratio is the percentage of your monthly income that goes towards paying your debts. For example, if your monthly income is $5,000, and you spend $2,000 per month on credit repayments, your debt to income ratio is 40%. Lenders may prefer applicants with a lower debt to income ratio as it can reflect a lower credit utilisation rate and a belief the applicant is more financially responsible.

A default is when you do not meet the repayment obligations in your credit agreement for a personal loan or another type of borrowing. A lender will not usually issue a default notice if you miss one payment but will do so if you miss several consecutive payments. A default is a serious credit infringement and can have severe consequences for your credit score. A default notice may also be the first step in further action the lender plans to take, which may lead to court action and bankruptcy.

Deferred payments are when your loan repayments are due on a specific date, but you agree to postpone them with the lender for a range of reasons. For example, some lenders offer a “payment holiday” of 1 – 3 months when you take out a personal loan. Therefore, you have deferred these payments from the start of your loan.

An early repayment charge (ERC) is a fee some lenders apply if you pay off your loan early. Lenders do not include this fee in the comparison rate as they don’t know in advance if you’ll do this. ERCs often differ significantly between lenders, while some lenders only charge an ERC if you repay your loan within a specific period from the start of your loan.
You may also see ERCs called termination fees, discharge fees, or early repayment fees.

An establishment fee is a one-off fee you pay at the start of your loan. Most lenders include this fee in the comparison rate.
If a lender says they don’t charge establishment fees, check their fee schedule and the comparison rate, as such loans often have higher ongoing costs.

The expiry date is the date your loan will end, providing you have made all repayments on time.

The fee schedule and terms are a list of fees lenders tell you they charge, and when they charge them. Lenders will include most fees in your comparison rate regardless of when they apply. For example, if you take out a personal loan for 48 months, the lender will build 48 monthly fees into your comparison rate.
Fees that not all borrowers incur, like early repayment charges, will be on the fee schedule but not in your comparison rate.

A fixed-rate personal loan means your interest rate is constant for the duration of your loan or other credit agreement. So, your repayments will remain the same throughout your loan period. Fixed-rate loans can be beneficial to borrowers who prefer having a fixed outgoing for personal budgeting purposes.

A hard enquiry is another name for a credit check. A hard enquiry is a credit check that a lender will conduct as part of your credit application process. Hard enquiries on your credit file can affect your credit score, with numerous hard enquiries in a short period being particularly detrimental to your score.

Your interest rate is the percentage of your borrowing you will repay to the lender on top of the loan, or other borrowing amount. Lenders express interest rates as an annual rate, which you’ll usually see called APR. Your interest rate is your “hire charge” for borrowing the cash, while the comparison rate includes the lender’s fees, too.

A joint personal loan is a loan you can apply for in conjunction with your partner or spouse.
Both parties hold joint responsibility for repaying the loan. If one party does not make repayments, the lender can pursue the other borrower for the cash.

Your loan term is the length of time over which you borrow money, usually from the date your loan starts until the date of your final repayment.

The monthly fee is an ongoing payment you make to your lender, effectively a servicing and administration fee. Most lenders include their monthly fees in your comparison rate. However, before applying for a personal loan, you should double-check this is the case. Some lenders will advertise a low comparison rate but then charge monthly fees on top.

A non-bank lender is a lender from where you can borrow money, but aren’t classified as a bank! Non-bank lending has become increasingly popular in recent years as consumers have become more financially savvy. People realise they can save money by considering a more extensive range of personal loan choices.

Some lenders may refer to their monthly fees and any added charges under the umbrella term ‘ongoing fees’. Most lenders include their ongoing fees in the comparison rate, but you should check this when considering any personal loan.

Personal finance brokers can help you find a range of finance products, including personal loans, credit cards, and insurance.

A personal loan lender is a place where you can borrow money. You apply for a personal loan with a lender, either directly or via a broker, and get a yes or no answer.
Some lenders now offer “Get Your Rate” features where you can find out what your interest rate will be if they accept your application. This can make it easier to find a loan as you avoid applying thinking you’ll get one interest rate, only for the lender to offer you another.

Your principal is the amount of cash you borrow. For example, if you get a personal loan of $10,000, your principal is $10,000.
In contrast, your total loan cost will be higher as this will include the interest rate, fees, and other factors included in your comparison rate.

The RBA Base Rate is the official cash rate as determined by the Royal Bank of Australia at a given time. Changes in the RBA base rate will only affect your cost of borrowing if you have a variable rate loan.

Refinancing is when you take out a new personal loan to repay what remains on your current loan and potentially increase your loan to get additional cash for your next purchase. Debt consolidation is also a type of refinancing, where you use a new loan to repay your existing debts.
Some lenders may contact you about refinancing after a certain period or shortly before an existing loan expires.

A secured loan is a personal loan where you offer security to the lender against the risk of you defaulting on your payments. Security on such a loan will typically be a high-value asset like a vehicle. If you fail to make repayments as per your credit agreement, the lender will be able to take possession of your asset and sell it to repay your loan.
You can often borrow higher amounts and get lower interest rates when applying for secured loans, as there is less risk to the lender.

A soft enquiry is an inquiry into your credit report initiated either by you or a company, unrelated to a specific application for credit. Soft enquiries can appear on your credit file, but do not affect your credit score.

Unsecured loans are personal loans that you apply for without offering an asset as security to the lender. If you do not make the repayments on an unsecured loan, the lender may pursue you via court action for the cash. As unsecured loans are a higher risk to lenders, you will usually be able to borrow lower amounts. You will also often receive higher interest rates in comparison to a secured loan.

Some lenders charge upfront fees that you must pay before having your loan paid into your bank; some even charge an application fee!
In most cases, when upfront fees apply lenders include these in your comparison rate but remember to check if this is the case.

A variable-rate loan means your interest rate may change during your loan term. Changes will be in line with the RBA base rate, meaning your repayment amounts could go up or down during your loan term.
While variable-rate loans can be inconvenient if you prefer a fixed payment for budgeting purposes, they can often work out cheaper in the long-run. However, you should check the RBA base rate before taking out a variable rate loan and assess the chances of it either increasing or decreasing during your loan term.