Plain-English reference
The loan glossary
Lenders have a language of their own. Here are the terms that turn up most often in Australian loan documents, defined without the jargon. When a term appears in one of our guides, this is the plain version.
Last updated July 2026
A
- Amortisation
- The process of paying off a loan through regular repayments that cover both interest and part of the amount borrowed, so the balance falls to zero by the end of the term.
B
- Balloon payment
- A larger lump sum owed at the end of some loans, often car or equipment finance. It lowers the monthly repayments but must be paid or refinanced when it falls due.
C
- Comparison rate
- A single interest figure that bundles most fees and charges into the rate, so borrowers can compare the true cost of loans on a like-for-like basis.
- Chattel mortgage
- A business finance structure where you own the asset from the start and the lender holds a mortgage over it as security until the loan is repaid.
D
- Default
- Failing to meet the agreed terms of a loan, usually by missing repayments. Default can lead to fees, credit-file marks and, for secured loans, repossession of the asset.
- Deposit
- Money you contribute up front toward a purchase, reducing the amount you need to borrow. A larger deposit can lower the rate and the total interest paid.
E
- Equity
- The share of an asset you own outright, that is, its value minus any loan secured against it. Equity grows as you repay the loan or the asset rises in value.
- Establishment fee
- A one-off fee some lenders charge to set up a loan. It is one of the costs the comparison rate is designed to capture.
F
- Fixed rate
- An interest rate locked for a set period so repayments stay the same. It offers certainty but often less flexibility and possible break costs if you exit early.
G
- Guarantor
- A person who agrees to repay a loan if the borrower cannot. Being a guarantor is a serious commitment with real financial risk.
H
- Hire purchase
- A finance arrangement where the financier owns an asset while you hire it and make payments, with ownership transferring to you after the final payment.
I
- Interest
- The cost of borrowing money, usually expressed as an annual percentage rate. It is what a lender charges for the use of its funds over time.
- Interest only
- Repayments that cover only the interest for a period, keeping repayments lower but not reducing the amount borrowed during that time.
L
- Lease
- An arrangement where a financier owns an asset and rents it to you for an agreed term. A finance lease and an operating lease differ in who carries the risks of ownership.
- LMI
- Lenders mortgage insurance: a one-off cost that can apply to home loans with a small deposit. It protects the lender, not the borrower, if the loan is not repaid.
- LVR
- Loan to value ratio: the size of a loan as a percentage of the value of the asset securing it. A lower ratio generally means less risk to the lender.
O
- Offset account
- A transaction account linked to a loan whose balance is subtracted from the loan balance when interest is calculated, reducing the interest you pay.
P
- Principal
- The amount of money actually borrowed, separate from the interest and fees charged on top of it.
R
- Redraw
- A feature that lets you withdraw extra repayments you have made ahead of schedule, subject to the loan’s conditions.
- Refinance
- Replacing an existing loan with a new one, often to secure a lower rate, change features or consolidate debts. Weigh the switching costs against the savings.
- Residual value
- The amount assumed to remain owing on a leased or financed asset at the end of the term, similar in effect to a balloon payment.
S
- Secured loan
- A loan backed by an asset the lender can repossess and sell if you default. Security usually means a lower interest rate but more at stake.
T
- Term
- The length of time over which a loan is repaid. A longer term lowers the monthly repayment while increasing the total interest paid.
U
- Unsecured loan
- A loan not backed by any asset. Approval and pricing lean more on your credit profile, and rates are typically higher than a secured loan.
V
- Variable rate
- An interest rate that can move up or down over the life of a loan, usually in response to broader market and cash-rate movements.
Definitions here are general explanations, not advice, and are simplified for clarity. Exact meanings can vary by lender and contract. For plain-English money guidance from the Australian Government, see moneysmart.gov.au.
Ready to see a term in context? Head back to the guides or try the repayment calculators.