Finance terms made simple

Glossary of Financial Terms


The repayment of debt by a series of regular instalments over a period of time. This also applies to the gradual reduction over time of the principal of a bond or mortgage.

Asset & Liability Statement (A&L)

A statement that outlines items of value that you own (referred to as ‘Assets’) such as property, car and shares, along with any debts or other sums that you owe (referred to as ‘Liabilities’). Your liabilities may be unsecured (eg a credit card) or secured against your assets (eg a mortgage, which uses your home as security). When you subtract your total liabilities from the total value of your assets, the balance is sometimes referred to as your ‘Net Asset Position’.

Balloon Payment

A payment due at the end of a mortgage or loan. Because the entire loan amount is not amortised over the life of the loan, the remaining balance is due as a final repayment to the lender. This amount is agreed to at the beginning of the loan and is included in your loan agreement and calculation schedule.

Business Loan / Lending

A lease or loan that is required wholly or predominantly to finance a business need. The proceeds of a business loan may be used to fund large capital expenditures and/or operations that a business may otherwise be unable to afford.

Capitalised Interest

This is when you do not pay interest on your loan, but instead opt to add the interest to your loan amount. Your outstanding loan amount increases every time interest is charged on your loan.

CHP (Commercial Hire Purchase)

A lender buys a good (eg equipment) and allows you to use it through a leasing arrangement where you make loan repayments. Once you have made your final repayment and the full amount of the contract has been paid, you own the good.


A method of allocating the cost of a tangible asset over its estimated useful life. An asset ‘depreciates’ in value over its lifetime.


When applying for a loan, you may be requested to supply your financial information that will help us assess your ability to pay back the loan. Financials can include information such as: Profit & Loss Statement (P&L), Balance Sheet, Tax Returns, Asset & Liability Statement (A&L).

Interest Only (I/O)

This is when the repayments on your loan have been calculated to cover the interest charges only for a specified period. If you are paying interest only, the principal (or original loan amount) is not being paid off and will remain the same.

Joint and Several Guarantee

This means that, if you default on your loan and do not repay it, any of the guarantors on your loan can be held fully responsible for repaying the full debt amount, be it as a group AND as personal individuals.

Limited Guarantee

An agreed amount that a guarantor is responsible for should you default on your loan.

LVR (Loan Value Ratio)

The ratio of the amount you borrow to the value of the property that secures the loan.

Master Limit

A lease or loan document that allows a pre-approved lending limit for a customer. This single lease limit estimates the total of your future leasing needs and enables future leases/loans to be funded without the requirement of approval for each new lease/loan. People nominated on the Master Limit agreement are able to sign for leases up to the value of the total Master Limit.

Novated Lease

This is sometimes referred to as ‘Car Salary Packaging’ or ‘Salary Sacrifice’. This applies when you make a lease agreement with Capital Finance, then your employer agrees to pay the lease on your behalf (signing a new or ‘novated’ lease agreement) from your pre-tax income. This agreement terminates when your employment terminates. You will then be responsible for payments of the lease.

NPV (Net Present Value)

This is the difference between the value of cash inflows and cash outflows, before interest earnings and charges, as calculated today. Put another way, NPV compares the value of a dollar today to the value of that same dollar in the future, taking inflation and returns into account.

Personal loan / lending

A lease or loan that is required wholly or predominantly for individual or family needs. This does not include any loans required for business purposes.


The amount borrowed or the amount still owed on a loan, separate from interest.

Principal & Interest (P&I)

This kind of loan repayment covers both the interest charge on a loan and reduces of the amount borrowed (‘Principal’).

Residual Value

This is how much a fixed asset is worth at the end of its lease, or at the end of its useful life. The residual value is determined by the lender that issues the lease before the lease begins.

Secured Loan

A secured loan is one which requires you to offer property or other valuable items as collateral (or security) for the loan. This collateral can be claimed by the lender to recompense it if the loan is not repaid. A car loan may be secured against the value of the car it is used to finance.

Structured Lease

This is when lease payments are organised over a particular time schedule, for example, one payment in the first month, followed by no repayments for six months, followed by regular monthly repayments.

Unsecured Loan

An unsecured loan is one where you do not need to offer any collateral (or security), that is, property or other valuable items that can be claimed by the lender to recompense it if the debt is not repaid. Such loan is backed not by collateral but by the creditworthiness of the customer.

Use of the information contained on this page is governed by Australian law and is subject to the Terms and Conditions which can be read on the Terms and Conditions page.