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Finance Broking Experts Define Common Credit Jargon

Announcement posted by Revolution Finance 25 Aug 2015

Revolution Finance makes understanding credit easy for consumers.

Have you ever wondered 'what on earth is a comparison rate?  Or ‘what is my credit file and how do I look after it?’ We hear these questions all the time so you are not alone! With this in mind we have decided to explain the most common credit jargon and acronyms you might come across when applying for a car loan or home loan. 

Credit Enquiries

Every time you apply for a credit product, a credit enquiry is listed on your credit file by the credit provider. A credit product can include any credit card, personal loan, home loan, rental (such as Radio Rentals) and utilities such as phones and power.

Regardless of whether you are declined or approved the credit enquiry will be added to your file, even if you never proceed and sign up for the credit product. Credit enquires stay on your credit file and too many can have a negative impact on your credit score.

It pays to do your research (or have someone do it for you) before applying for a product. This will keep credit enquires to a minimum and improve your chance of approval.

Comparison Rate

Lenders are required by law to include a comparison rate when advertising a loan interest rate, however comparison rates are often misunderstood amongst borrowers.

A comparison rate helps consumers identify the true cost of loan and is made up of the amount of the loan, the term of the loan, the repayment frequency, the interest rate and the fees and charges associated with the loan. The comparison rate is essentially all of these elements combined into a single percentage figure.

Whilst comparison rates are a good tool for estimating the total cost of the loan, it is important to note that they do not include government charges such as stamp duty and mortgage fees. They also don’t include fees that are charged if certain events occur such as early termination fees and redraw fees.

Residual Value/Balloon

A residual value or balloon payment is a lump sum owed to the lender at the end of a loan term after all regular repayments have been made. A residual value allows a borrower to repay only part of the principal of their loan over its term, reducing their repayments in exchange for owing the lender a lump sum at the end of the term.

The amount of a residual value or balloon payment may be represented as an absolute dollar figure or a percentage of the amount borrowed. With the exception of leases, having a residual/balloon on a car loan is optional. Residuals are not available on home loan products.

Lenders Mortgage Insurance (LMI)

Depending on your lenders requirements, Lenders Mortgage Insurance (LMI) may allow you to borrow up to 95% of the purchase price of your home, with a lower deposit than is usually required. 

Traditionally, lenders prefer borrows to have a 20% deposit. However, by using LMI, lenders are able to offer home loans with a lower deposit. LMI protects the lender if a borrower is unable to meet their mortgage repayments and the property has to be sold.

If the proceeds of the sale of the property are insufficient to cover the outstanding loan balance and other costs incurred by your lender in relation to enforcing the mortgage, the lender is able to claim any shortfall from their insurer calculated in accordance with the terms of the policy.

LMI can either be paid upfront or capitalised into the loan.


If you have any credit or finance related questions, give our experienced consultants a call today on 1300 882 851. You can read more about our car loans and home loans by clicking the links.

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