Coming across unknown financial terms can be confusing. Pointer Finance has brought you some key financial terms to make your financial vocabulary strong and make banking life easier. So, next time when you meet or talk to a finance broker you know what you’re talking about or what you’re being talked into.
Account – In terms of banking, account is the arrangement for customer’s debit and credit of funds, also a statement of the records of the transactions in a form of credits and debits. An account is also referred to as a ‘brokerage account’ which holds customers’ assets at a licensed brokerage firm.
Assets – The tangible things you own are called assets. These things can be cash or things that can be converted into cash like property vehicles, equipment, and inventory, etc.
Balance Transfer – The movement of debt balance from one account to another account. To make it easier, the shift of credit balance from one credit card to another credit card. To cut down on interest rates, customers tend to transfer the balance.
Basic Home Loan – It is the type of home loan where there is no application and ongoing account management fees.
Bridging Loan – It is a short-term loan that an individual finances into the purchase of new property while he/she is selling their existing property.
Budget – It is the most important management tool for planning and controlling the finances by estimating the revenue/income and expenditure for a period.
Borrowing Power –The amount an individual or company can borrow based on their income, debts, other expenses.
Cash Flow – The amount of money that keeps flowing through your personal finances. There are two types of cash flows: Positive cash flow is when your revenue/income overtakes expenses and there is excess cash. Negative cash flow on the other hand, is when expenditure is higher than the revenue/income is generated.
Credit – It is the amount available to spend based on your ability to pay in terms of a loan or a credit card.
Credit History – It is the record of a borrower’s accountable repayment of debts.
Credit Limit – The approved amount of funds available to the borrower to use according to the agreed loan agreement.
Credit Rating – It is the evaluation of the credit’s risk of an individual or company predicting the ability to play back debts.
Debit – The amount that is owed by an individual or party.
Debt-to-income Ratio (DTI) – It is the total of an individual’s debts and liabilities taken into consideration ensuring you can meet your home loan repayments for present and future.
Depreciation – Over the time when your asset value gets dipped it’s called depreciation, except for real estate assets.
Fixed Interest Rate – It is a type of loan where the interest rates do not rise and fall during the fixed rate term.
Full Feature Home Loan – It is a home loan offering loads of features – providing a lot of flexibility, maternal leave options and very competitive rates.
Guarantor – Any individual from your family or relative who agrees to help you in securing a home loan by offering their own property as an additional security.
Interest Rate – The amount of interest, which is due per period, as an amount of percentage of amount lent, deposited, or borrowed.
Liability – It is a sum of money payable by a person or company.
Line of Credit – A type of loan which allows the borrower to withdraw money from an account up to a restricted limit.
Loan to Value Ratio (LVR) – The amount as the percentage, derived from the asset against the cost of an asset.
Offset Account – It is a transaction account linked to your home loan.
Redraw – A feature that allows borrowers retrieve excess funds that have been paid towards a loan.
Security – An asset which a borrower secures to afford a loan. If he/she cannot repay the loan amount on time, this asset is taken away by the lender. Split Loan – It is a type of home loan where you can divide it in two parts – you can nominate the first half to have a variable interest rate and the other half to have a fixed interest rate.
Variable interest rate – It is a type of loan where the interest rate fluctuates with the market forces.
These are just some of the common financial terms that are used by finance brokers daily. Understanding the basics will give you a strong foundation when speaking with financial brokers
Pointer Finance is your smart guide for everything to do with residential, self-employed, and SMSF loans. We’re experts in personal lending so you don’t have to be. We’ll keep an eye on the future while finding you competitive, flexible loan options with a speedy turnaround, so you’re not kept waiting.