- Annual Percentage Rate (APR) The interest rate applied to a loan, expressed as an annualised rate.
- Effective Interest Rate (EIR) APR The nominal rate per annum, adjusting for compounding, and including the cost of all contracted repayments and other fees and charges both upfront and ongoing, on an annualised basis.
- Simple Interest Rate In a given period, the amount of interest paid on a loan divided by the average outstanding loan balance in that period, annualised.
- Flat Interest Rate The amount of interest paid on a loan divided by the original loan amount, annualised.
- Factor rate The multiple applied to the original loan amount that arrives at the total payback on the loan (principal plus interest).
- Discount rate The percentage discount applied to the face value of an invoice.
- Term of product, conditions & fees
- Term The contracted period of time over which a loan is due to be repaid.
- Total repayment The contracted amount due to be repaid inclusive of principal, interest & fees.
- Repayment amount The contracted amount (if any) due to be repaid per period for the term of the loan.
- Repayment frequency The regularity with which a scheduled repayment must be made (typically daily, weekly, fortnightly, monthly, quarterly or maturity).
- Loan amount Amount borrowed inclusive of any origination and/or establishment and/or settlement fees.
- Disbursement amount The amount borrowed exclusive of any origination and/or establishment and/or settlement fees.
- Early repayment (or prepayment) A payment made by the borrower to the lender in excess of amounts contractually due under the loan agreement.
- Early repayment (or prepayment) fees An amount charged in relation to an Early Repayment (or Prepayment) including interest and fees applied in excess of the contractual rate for the period ending when the Early Repayment (or Prepayment) is made.
For completeness, where the amount is indeterminant on the date the loan agreement is entered into (i.e. where the date of Early Repayment (or Prepayment) determines the Early Repayment (or Prepayment Fee), then a minimum and maximum fee should be provided.
- Late payment Where a contractual payment is received after the date on which it is due under the loan agreement.
- Late payment fee The fees applied to a Late Payment.
- Dishonour Where a scheduled payment, pursuant to the loan agreement, is not paid by the borrower.
- Dishonour fee The fees applied to a Dishonour.
- Application fee The amount by which the disbursed amount of a loan is less than the notional amount of the loan.
- Origination / Establishment fee The amount by which the disbursed amount of a loan is less than the notional amount of the loan.
- Drawdown fee The amount by which the disbursed amount of a drawing is less than the amount of the drawing under the loan agreement.
- Settlement fee Any fees charged by a lender to disburse funds, that is not an Application Fee, an Origination Fee or an Establishment Fee.
- Partner / Broker commission / fee An amount paid to a broker or referrer in relation to a specific finance agreement, where that finance agreement was entered into by a lender following a referral made or application submitted by the broker or referrer. This amount is paid by the borrower (typically by capitalising the amount of the fee to the amount of credit) and/or by the lender.
- Direct debit fee An amount paid to a lender by a borrower for each payment made by direct debit.
- Facility fee An amount paid to a lender by a borrower for the continued provision of a line of credit to that borrower. The fee may be paid either at establishment of the line of credit, or periodically after establishment according to an agreed schedule.
- Fixed term unsecured loan An amount of credit that is disbursed to a borrower (or another nominated recipient) in full at establishment, repaid over a fixed term with an agreed number of equal payments comprising principal and interest.
As the loan is unsecured, the lender is not able to exercise an interest in any collateral in the event the borrower fails to make agreed payments.
- Secured business loan An amount of credit that is disbursed to a borrower (or another nominated recipient) in full at establishment, repaid over a fixed term with an agreed number of equal payments comprising principal and interest.
- Line of credit / revolving line of credit An ongoing credit facility characterised by:
- A pre-approved credit limit, being the maximum amount of credit that may be accessed by a borrower, set at establishment by the lender with reference to the borrower’s objectives and borrowing capacity; and ● A balance, being the amount of credit outstanding at a point in time. Amounts of credit may be accessed by the borrower without further approval, so long as the resulting balance is below the credit limit.
Interest is charged on the outstanding balance of the facility, and periodic minimum repayments of principal are required to be made by the borrower. A facility fee may be charged to the borrower at establishment or periodically according to an agreed schedule.
- Invoice finance / debtor finance / factoring An advance of cash from a lender to a borrower, with the right to collect on unpaid invoices provided to the lender as collateral by the borrower.
- Equipment (operating) lease / finance lease A lease is a contract in which the finance provider (lessor) is the legal owner of the leased asset for the duration of the contract. The customer (lessee) is given operating control over the asset in exchange for regular lease payments.
- A lease is classified as a finance lease if it transfers substantially all the risks and rewards incidental to ownership from the lessor to the lessee. A lease is classified as an operating lease if it does not transfer substantially all the risks and rewards incidental to ownership.
The arrangement of a finance or equipment lease is characterised by: ● The lessee selecting an asset to lease ● The lessor purchasing the asset to be leased ● The lessee being given rights to use the asset for the duration of the contract, and in return making regular payments to the lessor as described by the lease agreement. Depending on the lease arrangement, the lessee may or may not be given the option to acquire the asset during or at the completion of the lease agreement.
- Vendor / program finance An advance of credit by a vendor (or alternatively by a third party lender) to a customer for the purpose of purchasing the goods, services or real estate being sold by the vendor.
- Interest only loan An unsecured or secured loan that is disbursed in full to a borrower (or another nominated recipient) at establishment, with no repayment of principal due until the end of an agreed term.
- Periodic payments of interest amounts, typically based on the amount of credit outstanding, are made by the borrower to the lender (or capitalised to the loan balance) throughout the term of the loan according to an agreed schedule.
- Overdraft An amount of credit provided by a bank when the balance of a bank account reaches zero.
Credit to and Definitions extracted from: https://www.asbfeo.gov.au/sites/default/files/documents/FinTechAustralia%20-%20glossary.pdf