Finance terms explained

An Australian Business Number (ABN) is an 11-digit identifier for businesses registered in Australia. Businesses use it to interact with other businesses and the Australian Government.

An asset is something of value, like a car or property.

A balance transfer occurs when the balance of one credit card is transferred to another credit card that has a balance transfer facility. The new card often comes with an introductory 0% interest period for a limited time, but bear in mind that there’s usually a fee to transfer a balance.

Essentially, your borrowing power is how easy it is for you to borrow money. It’s primarily influenced by your credit score, however there are also other factors that impact your borrowing power, such as your income and expenditure.

A budget is a financial plan spanning a specific period of time that records predicted income and expenditure. Essentially, it helps you allocate funds and keep your spending in check with how much income you have coming in.

Buy Now Pay Later (BNPL) is a borrowing facility often offered at point of purchase. It usually allows you to spread the cost of a purchase over a few months, usually at 0% interest. However, if you’re not able to meet the required repayments within the predetermined timeframe, there can be high penalty fees.

Capital gain is the growth in value of an asset, such as property or financial investments, after taking into account its original cost. 

Compound interest refers to the interest earned on an initial amount, plus interest already earned. Lost? Don’t worry, let’s break it down.

Say you put $100 into a savings account with a monthly 5% interest rate. After a month, you’ll have $105. However after the second month, instead of earning another $5, 5% is earned on $105, so you’ll earn $5.25 and in total have $110.25. 

This is compound interest.

In terms of borrowing: credit is the ability to borrow something, but with the agreement to pay it back. Credit can come in many forms, such as a credit card, loan or Buy Now Pay Later. The amount of credit available to you often depends on your credit score and ability to meet the repayments.

In terms of an account: credit is the amount that is added into an account.

A credit card allows you to make purchases up to a fixed limit. For instance, if your credit card has a $2,000 credit limit, you can borrow up to that amount. 

Once you repay an amount you’ve spent on your credit card, the same amount will be available to borrow again - this is called revolving credit. Credit cards often don’t charge interest if you repay what you owe in full within a month (or the time period specified by the card). 

However, if you only make the minimum monthly repayment required, you’ll be charged interest on the outstanding amount. Interest can build up quickly if left unchecked, so it’s a good idea to try to make full monthly repayments.

A credit limit is the maximum amount that you can borrow. 

A person or organisation to whom money is owed, such a lender.

Your credit report is a record of your credit history compiled by credit reporting agencies. Every interaction you’ve had with credit or creditors in the past, such as taking out a loan, applying for a mortgage, using a credit card, or even paying for a mobile phone contract is all recorded in your credit report.

Your credit score is one of many factors that lenders use to assess whether to lend you money. It’s a numerical summary of your credit report and will take into account positive factors, such as never missing a credit repayment, or negative factors, such as being declined for credit.

Want to see how your credit scores are doing? At Wisr, you can check both your Experian and Equifax credit scores in one place.

Debt is an amount of money owed to another person or organisation. 

• A deposit is an amount of money required by an organisation as a security. 

• A deposit can also be a down payment (aka a partial payment) on a purchase.

A dividend is a financial bonus given to shareholders of a company. 

Equity is the amount of something you own. For instance, if you used a mortgage (aka a home loan) to buy a $500,000 property and put down a 10% deposit, your equity in your property would be $50,000.

A fixed interest rate is an interest rate that won’t change in a set time period. 

This is the tax return that Australian residents need to submit at the end of each financial year. It calculates the amount of tax that you owe for the year, including deductions, offsets and rebates.

An interest rate is the amount you’re charged to borrow money or that you earn on savings or investments. 

Interest rates are influenced by both the official cash rate (set by the Reserve Bank of Australia) and - when you want to borrow money - your credit score. The better your credit score, the lower the interest rates that will be available to you.

A line of credit (LOC) is a flexible loan that you can access when needed. Lines of credit have a maximum credit limit and interest is only charged on the amount borrowed, not the entire credit limit amount (a bit like a credit card). However, when money is borrowed, interest will be charged on the amount until it is repaid. There also can be additional fees involved. Once repaid, the amount will be available to borrow again.

A loan is a fixed amount of money that’s lent by a financial institution to an individual or pair of individuals. It’s then repaid in regular installments, plus interest, across the term of loan.

A loan purpose is exactly what is exactly what it sounds like - it’s what you’re going to use a loan for. Common loan purposes include debt consolidation, buying a car or making home improvements.

A loan term is how long you have to pay back a loan. For instance here at Wisr, we offer loan terms of 3, 5 and 7 years.

A loan to value ratio (LVR) is how much you’ve borrowed in relation to the value of an asset, such as a property. For instance if you buy a $500,000 property and put down a 10% deposit of $50,000, your LVR is 90%.

A mortgage, sometimes referred to as a home loan, is a loan used to buy a property. The loan is secured against the value of the property you purchase. This means that if you were to stop making your mortgage repayments, the lender could repossess your property to recover the cost.

Net income is essentially profit. It’s the income you have left after you’ve deducted all your expenses.

A Notice of Assessment (NOA) is a statement that explains how your individual tax return is calculated. It'll show any tax you need to pay or your refund.

The official cash rate is the interest rate set by the Reserve Bank of Australia (RBA). It is the interest rate on unsecured overnight loans between banks.

An offset account is an everyday account linked to a loan (usually a mortgage or home loan) where the money held in it reduces the interest payable on the loan. This is because interest is calculated on the difference between the loan balance and the offset account balance.

PAYG workers are most commonly people who are employed by an organisation that they don’t own. When PAYG workers are paid, their employer withholds tax from their pay and sends it to the Australian Tax Office (ATO). The ATO calls this a pay as you go (PAYG) withholding.

A personal loan (or unsecured loan) is a loan that’s not secured against an asset. This means that a financial institution lends a fixed sum of money, and it’s repaid in regular instalments across the term of the loan. Personal loans can be used for a range of purposes, from debt consolidation to funding home improvements.

A redraw facility allows you to access funds that have already been paid towards a loan.

This is how often you make your repayments. For instance at Wisr, we let you choose between repayment frequencies of weekly, fortnightly, or monthly.

A secured loan is a loan that’s secured against an asset, like a vehicle. This means that if you were to stop making your loan repayments, as a last resort your lender could repossess the asset to recover their costs. This adds an extra layer of security for a lender, which is why it is often possible to borrow a larger amount with a secured loan.

In the world of finance, a security is something of value that’s used as collateral for the amount borrowed. This essentially means that if a borrower was to stop making their repayments, their lender could recoup the security to recover their costs.

Third Party Authority (TPA) is when you give another person or organisation the authority to act on your behalf.

A transaction account is a financial account with a bank that you use for your daily spending. It is often the account that you have your income paid into.

A variable interest rate is an interest rate that can change. It is often pegged to the official cash rate (OCR), so if the OCR goes up, your interest rate is likely to follow. Similarly, if the OCR falls, your variable interest rate is likely to go down as well.