Sometimes it’s not all that easy to get your head around the banking talk that’s thrown about in relation to products or services you might be looking for. So, we thought we would have a crack at demystifying some commonly used terms
1. Direct debits
An arrangement that you set up with a service/product provider that allows them to regularly take a fixed or variable amount for things like electricity or internet, out of a nominated bank account.
2. Automatic transfer or scheduled payments
A re-occurring payment that you schedule at a nominated time that makes a payment to another account. This can be another account you have or to another person/organisation’s account.
PayID is a simpler way to send and receive money. It allows you to link a mobile number, email or ABN to your account so that those sending money to you can use these details instead of needing your BSB and account number. If you need to pay someone who has also registered for PayID, you’ll only need their PayID e.g. mobile phone number, to transfer money directly into their bank account.
When you borrow money from a financial institution, via a loan or credit card, interest is the amount of money you are charged on the borrowed money. When you are saving money in a savings account that includes interest, it is the amount you earn from the financial institution. The interest rate, set by your bank, determines how much interest you will earn or pay.
5. Comparison rates
A comparison rate helps you know what the true cost of a loan. It factors in the interest rate, fees and charges and displays a single percentage rate that can be used to compare various loans from different lenders.
6. Mortgage offset
A mortgage offset can help you pay less interest on your home loan. Instead of charging interest based on the full loan amount, a mortgage offset takes into account money you have in other bank accounts linked to your home loan.
7. Loan to Value ratio
Sometimes you hear lenders or brokers talking about LVR – this is the ratio between the amount you are wanting to borrow and the value of the property you’re purchasing. It is used to determine if you need to pay Lenders Mortgage Insurance.
8. Lender's Mortgage Insurance (LMI).
If you borrow more than 80 per cent of a property’s purchase price (above 80% LVR), you will need to pay insurance on the loan to protect the bank in case you default on the loan. How much LMI you pay can depend on how much money you borrow and your location.
9. Credit score
A number used in your credit report to calculate how likely you are to pay back your debt. This may also affect your ability to secure a rental property.
A credit report is Information about your credit history that is kept by a credit reporting body and used by lenders when assessing a loan or credit application. It will show how well or poorly you have been able to pay back a loan.
10. Term Deposit
A term deposit is a form of investment held at banks. You can deposit your money for a guaranteed interest rate over a fixed period of time. In most cases, the money can only be withdrawn at the end of the agreed period, or earlier with a fee. Term deposits are commonly used as a secure savings tool.
We know there might be many more bamboozling words out there. If you there’s one you’d like explained, let us know!