Loan Terminology
It is important to understand all the terminology in your loan contract before signing. Understanding the specifics will help you avoid unwanted surprises down the track. The ‘loan lingo’ can be very confusing that’s why we have put together a comprehensive list of common terms used when applying for a loan.
Applicant/Borrower/Debtor
The person who is applying for the loan.
Creditor/Lender
The person or company providing the loan.
Principal
Principal refers to the amount originally borrowed with a loan. It can also mean the current amount owing on a loan. Your lender makes interest calculations on the principal.
Balance
The balance is the principal plus any unpaid fees and charges. Generally payments made on a loan the accumulated fees and charges are paid first. This is why the balance of a loan reduces slowly at the beginning of a loan – because more of your repayments are going towards fees and interest rather than the principal.
Interest Rate
The interest rate is the amount of interest a lender charges expressed as an annual percentage. Although the interest rate is an annual percentage, most loans charge interest monthly. To work out how much interest to expect to pay in a month divide the annual rate by 12 then multiply that percentage by the balance.
Comparison Rate
A comparison rate is a rate that helps you work out the true cost of a loan. It reduces to a single percentage figure of the interest rate plus most fees and charges relating to a loan. The comparison rate allows you to compare loans from different lenders to find out how much it will cost you. Shorter term loans will generally have a higher comparison rate.
Accrued interest
The amount of loan interest that has accrued (built up) but is not yet due for payment.
Amortisation period
Also known as the loan term. It is the agreed length of time that a borrower has to repay a loan.
Loan term
The term refers to the length of time it will take to pay back the money borrowed provided that all payments are made on time.
Short Term Loan
A short-term loan is a type of loan that is obtained to support a temporary personal need. These types of loans will have a term of 1 to 2 years.
Personal Loan
A Personal Loan is a fixed amount of money borrowed at a fixed rate and repaid over a fixed amount of time. Unlike a car loan or mortgage, a personal loan can be used for just about any purpose – to purchase a used car, pay for a holiday, or assist with a rental bond.
Debt consolidation
This refers to the process of combining several loans into one loan to make a single repayment. This can be a smart idea if you are making multiple repayments towards smaller loans or if you are having trouble keeping track of your repayment schedule and incurring lots of extra fees. Combining many small debts into a larger loan can offer other benefits such as a smaller interest rate or better loan terms.
Loan Contract
A document signed by both parties, containing all the details of your loan including any fees, term and interest rates, as well as repayments. It is important to read your loan contract before signing to make sure you understand the terms and conditions.
Disclosure Date
This is the date that the contract or offer of credit is issued to the borrower.
Exit fees or early repayment fees
These are fees charged for paying out the loan early. The lender will generally charge them as a way to offset the money they would have made over the term of the loan.
Discharge fees
This is an administration fee to cover the costs of terminating a loan account. These fees are sometimes charged on top of exit fees.
Unascertainable or extra fees
You may incur unascertainable fees if you fail to meet the terms outlined in your contract. They include things like dishonour fees, rescheduling fees and repossession fees. These are the kinds of fees you want to avoid. The good news is these fees are easy to avoid by making your repayments on time.
Direct Debit
A signed agreement set up to automatically transfer funds from a nominated bank account (the applicant) to a third party account (Swoosh Finance).
Setting up a direct debit arrangement to pay your loan is a great way to make sure you don’t miss any payments – as long as there are enough funds in the account.
DDR (Direct Debit request)
A direct debit request refers to the request made for each individual payment as part of the contract. Each week, fortnight or month (depending on your repayment frequency) a direct debit request will be made on your account. The success of the direct debit depends on the available balance of the account.
Payment reference or loan reference number
Sometimes when you wish to make an extra payment on your loan, your credit provider will tell you to quote a reference number when making a payment. It is important you get this detail right if making extra repayments.
Secured or Unsecured Loan
A secured loan requires a registered vehicle or other asset as collateral.
An unsecured loan means that you don’t have to provide any security for your loan.
A secured loan usually has a higher approval rating, higher borrowing limits and lower interest rates.
Mortgaged Goods
You may have heard the term mortgage used to describe a home loan. However, mortgaged goods refer to any asset used to secure a loan. In the case of a loan with Swoosh Finance, this would be a motor vehicle.
Security interest
A security interest is a legal right granted to a creditor over the debtor’s property. This will enable the creditor to repossess the property if the debtor does not meet their obligations.
PPSR (Personal Property Securities Register)
The PPSR is a government website where details of security interests in personal property are registered and searched.
If you are buying a car it is a good idea to check the PPSR to make sure that there is no finance or other security currently on the vehicle. This is important because if you buy property subject to a security interest, it is possible that the person or entity with the security interest will repossess it.
Swoosh Finance provides secured personal loans of up to $5000. If you need a loan for any reason, apply online and get approved in 1 hour!
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