At Better Broker Co, we get it—finance can feel overwhelming sometimes. So many choices, so much jargon. It’s easy to feel lost or get taken for a ride. That’s why we’ve put together this super simple guide to take all the mystery out of asset finance and put YOU in control.
Whether it’s your first loan or you’ve been around the block before, we’re going to walk you through everything. By the end of this guide, you’ll be ready to handle your next loan like a pro—no stress, no confusion. Just smart decisions.
What you'll learn in this series:
EP2: - Common Finance Terms and Lingo You Should Know
EP:3 - Understanding Your Credit Score
EP:4 - What Documents Do I Need?
EP:5 - What Type of Loan Suits Me Best?
EP:6 - How to Find the Right Broker/Lender
EP:7 - Ready to Apply - Now What?
EP:8 - The Difference Between Pre-Approvals and Unconditional Approvals
EP:9 - I'm Approved, Now What?
EP:10 - Warranties and Insurances
EP:11 - Understanding My Finance Contract - What to Look Out For
EP:12 - What Do I Need for Settlement
EP:13 - Things to Know Before and After Settlement
Now, let’s break it down: Common Finance Terms (aka how not to get tricked by fancy words). When it comes to asset finance, you might hear a bunch of terms that sound confusing. But don’t worry! We’ve got your back. Let’s break it down, step by step.
Asset Finance
Asset finance is a type of lending that allows you to borrow money specifically for purchasing assets, such as vehicles, machinery, or equipment. Instead of paying the full price upfront, asset finance enables you to spread the cost over time, making it more manageable.
Chattel Mortgage
A chattel mortgage is a common way to finance assets like cars or machinery in Australia when the asset is being used predominantly for business use. With this loan, you own the asset straight away, but the lender keeps it as security until you’ve paid off the loan in full. One bonus is that businesses can claim some tax benefits, like GST on the purchase price, depreciation or the interest payments off their taxable income
Balloon Payment or Residual
A balloon payment is a lump sum payment that is due at the end of a loan or finance agreement. In asset finance, a balloon payment allows you to reduce your monthly repayments by deferring a portion of the loan to the end of the term. This can make your payments more affordable throughout the loan term, but it’s important to plan for the large payment due at the end. For example, if you borrow $100,000 over a 5 year loan and have a balloon or residual of $30,000, you will pay off $70,000 of the loan amount in the 5 years with a final payment of $30,000 due at the end as a final payment. Something to keep in mind is that even though you only pay off $70,000 of the loan, you are paying interest on the full $100,000. Balloons or residuals are a great way to reduce your repayments but they will cost you more over the life of the loan in interest.
Interest Rate
The interest rate is the cost of borrowing, shown as a percentage of your loan amount. It can be:
- Fixed: The rate stays the same throughout the loan, giving you consistent payments.
- Variable: The rate can go up or down with the market, so your payments may change over time.
Comparison Rate
The comparison rate gives you a clearer picture of the loan’s true cost. It includes the interest rate plus most fees and charges, so you can easily compare different loan options. Just remember, all comparison rates are calculated based on a $30,000 loan over 5 years, which might not be exactly what you’re borrowing—but it’s a great tool for comparing lenders.
Loan Term
The loan term is the period over which you agree to repay the loan. In asset finance, loan terms can vary depending on the type of asset and your financial situation. Choosing the right loan term is crucial; a shorter term means higher monthly repayments but less interest paid overall, while a longer term lowers the monthly repayments but increases the total interest cost.
Depreciation
Depreciation is the decrease in value of an asset over time—think of how a car loses value as it gets older. It’s important to consider, especially if you’re financing equipment or vehicles, as it can affect your ability to sell the car and pay off the loan amount down the track.
Secured vs. Unsecured Loans
- Secured Loans:The lender takes the asset you’re buying as security. If you don’t repay the loan, they can take the asset back. Because the lender has more security, secured loans tend to have lower interest rates.
- Unsecured Loans: No asset is held as security, so the lender usually charges a higher interest rate to balance out the risk.
GST (Goods and Services Tax)
In Australia, GST is a 10% tax applied to most goods and services, including many assets. When financing assets for business use, you may be able to claim the GST on the purchase price in your next Business Activity Statement (BAS), depending on your loan type. For example, with a chattel mortgage, businesses can claim the full GST on the asset.
PPSR (Personal Property Securities Register)
The PPSR is a national register that shows if an asset has a security interest (like a loan) attached to it. Before you finance an asset, it’s important to check this to make sure the asset is clear of any existing loans. This protects you from potential legal issues down the road.
Default
Default happens when you miss a payment or don’t meet the terms of your loan. This can lead to extra fees, damage to your credit score, or even having the asset repossessed. If you’re having trouble with payments, it’s always best to contact your lender—they may be able to work with you on a solution.
That’s it for this section! Keep an eye out for the next part of our series where we’ll help you understand your credit file!