A
Amortisation: The process of gradually decreasing the amount of debt by regularly meeting repayments over time. This process can also be referred to as the depreciation of debt.
Annual Fee: A fee charged by your creditor for use of the account or service. An annual fee is associated most commonly with the use of credit cards.
Annual Percentage Rate (APR): The interest charged on your debt, expressed as a 12-month rate. A useful metric to use when comparing long-term credit borrowing. For short-term loans, the APR will seem high, and you are advised to compare the overall cost of borrowing rather than the APR.
Application Fee: The cost of submitting an application for credit. An application fee is more commonly seen for home loans and not typically charged on smaller loan amounts.
Appraisal Value: An educated estimate on the value of a property or possession. An appraisal of your assets will be done on all secured lending.
Asset: A possession or property owned by the customer that has cash value. Assets are used as collateral in secured lending. Assets usually accepted by lenders include vehicles or property.
Authorised User: Anyone you have approved to use your line of credit. Often with credit cards, an authorized user will have access to the credit line and/or credit card with their name on it under the same account.
B
Balance Transfer: The process of moving all or some of an outstanding balance from one credit card on to another.
Bankruptcy: A legal proceeding that excuses a person from repaying all or part of their existing debts due to being unable to meet repayments and experiencing over-indebtedness. Bankruptcy should be viewed as your last option and it will have detrimental effects on your credit score and your likelihood of being accepted for a line of credit in the future.
Borrower: The person requesting the loan and responsible for repayments.
C
Cardholder: The person issued the credit card and/or authorised users.
Cash Advance: A cash loan requested from your creditor through an ATM or use of a paycheck. Usually offered as a line of credit on credit cards that comes with a unique set of charges.
Collateral: Asset or property used as security against a loan. The lender will take control and ownership of the collateral if the loan is not repaid.
Collections: A creditor may sell your debt book to a collections agency to recuperate a proportion of the amount owed. A collections record will remain on your credit report for a number of years.
Credit Bureaus: A company that collects information relating to the credit ratings of individuals and makes it available to lenders and credit card issuers. The main credit bureaus in Australia include; Veda Advantage, Tasmanian Collection Service, Dunn & Bradstreet and Experian.
Credit Report: A record of consumer financial behaviour that is kept on an individual by a credit bureau. The credit report will include the following information; full name, age, residential address history, employment history, loan and credit behaviour history including default repayments and bankruptcy filings.
Credit Score: A number formulated from an individual’s credit report by the credit bureau that provides a high-level evaluation of the credit risk of the borrower (whether you a likely to meet repayments). A credit score ranges from 300 -1200, with a good credit rating being 700+
D
Debt: An amount of money owed by the borrower.
Debt Consolidation: The process of combining all existing debts into one repayment plan. The process can be done individually (e.g. taking out a personal loan to consolidate your credit card debt) or through the use of a debt counsellor.
Debt Counselling: A professional service offered by licensed debt counselling agencies who negotiate new repayment terms over a longer period of time with your creditors to reduce your monthly payment amount and make your debt more manageable. A debt counselling agency can also negotiate a debt settlement with your creditor in extreme cases, meaning the amount of your debt is reduced.
Default: A status of a debit account that indicates the debt has not been repaid. A loan account will go into ‘default’ if a repayment is missed.
F
Finance Charge: The total cost of borrowing. The finance charge includes the interest rate and additional fees that may be applied to the account, such as an establishment fee.
Fixed Rate Interest: An interest rate that is fixed in amount for the whole of the loan period.
I
Initiation/Establishment Fee: A one-time fee charged by a lender for creating your loan account when you are approved for credit. Short-term lenders, personal lenders and credit card issuers may charge initiation fees.
Instalment Account: A loan where the borrower makes the same repayment each month. A personal loan or a car loan can be considered an instalment account.
Interest Rate: A proportion of the loan that is charged as interest to the borrower for use of the credit. The interest rate is usually shown as an annual percentage.
Introductory Rate: A low-interest rate offered for a short period of time by a credit card provider to attract new users.
Insurance: A contract represented by a policy in which an individual or entity receives financial protection or reimbursement against losses from an insurer. The most common forms of insurance policies are vehicle, health, homeowners and life.
Indemnity: A form of compensation for loss or damages. Indemnity in the legal sense is also commonly referred to as an exemption from liability or damages. The concept is based on a contractual agreement made between two parties.
L
Late Payment: The failure to make a repayment on a line of credit by the agreed time. A late payment can have detrimental effects on your credit score.
Lender: The financial institution that provides the loan to the borrower. Lenders are regulated by the Australian Securities & Investments Commission
M
Minimum Payment: The minimum amount due each month on an outstanding credit card balance.
Monthly Service Fee: A monthly fee charged by a creditor provider for managing your credit account. Lenders and credit card issuers can charge monthly service fees.
O
Opt-Out: An individual can choose to stop receiving pre-approved financial marketing offers and news by ‘opting out’
Over-Limit Fee: A fee charged by credit card issuers when the cardholder exceeds the agreed credit limit on the card. The over-limit fee will be agreed prior to issuing the card and is usually charged every billing cycle until the credit amount no longer exceeds the credit limit.
Overdraft: An overdraft occurs when money is withdrawn from a bank account and the available balance goes below zero.
P
Prepayment/Early Payment Fee: A fee charged by a lender when a borrower repays the loan prior to the end of the agreed term. Not all lenders will charge a prepayment fee.
R
Repossession: When a secured loan is overdue, the lender may take possession of the asset(s) used as collateral against the loan to recoup the debt amount.
Rewards Card: A credit card that rewards spending on the card with points. The points will accumulate with spending and can be used to claim rewards, air miles or cash back. Reward cards are usually approved to consumers with a good credit score.
S
Secured Credit Card: A credit card that requires the cardholder to provide collateral on the credit card, usually a cash deposit equal to the line of credit. Secured credit cards are helpful for consumers with poor credit scores that want to rebuild their credit.
Secured Debt: A line of credit that requires the borrower to provide collateral as security for the creditor. The collateral is usually seized if the borrower fails to repay the loan.
Settlement: An agreement made with the creditor to repay a debt for less than the amount owed. A settlement will show on a credit report and is only a good option when experiencing over-indebtedness and payments are significantly overdue.
U
Unsecured Debt: A loan where the lender does not take collateral against the amount borrowed. An unsecured debt will usually have higher interest rates to mitigate the risk of lending for the creditor.
V
Variable Rate: An adjustable interest rate that is typically influenced by the Reserve Bank.
