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Car loan lingo explained

So, you’ve found your dream ride and now you’re looking at financing. Unfortunately, trying to understand some of the car loan jargon can baffle the best of us.

Below we’ve explained 6 common terms you may come across during your search, so you can confidently understand the lingo used.


This process takes place before you lock in your loan. By giving your lender the relevant financial information, they can let you know the estimated amount you may be approved for.

Some prospective buyers choose to get pre-approval before they start shopping around for a car to avoid being caught out.

Secured loan

A secured car loan means you provide your car as security for your loan.

If you fall behind on your repayments and don’t work with your lender to get back on track, your lender then has the right to sell your vehicle to clear your outstanding car loan and fees.

When you do provide your car as security, this helps to show you’re genuinely committed to repaying your loan. Because of this, it can strengthen your application and support your chances of approval, especially if you currently have a poor credit rating.

Unsecured loan

Unsecured loans require no collateral.

This means you can take out a car loan without having to offer your car (or anything else) as security.

Not all lenders offer unsecured loans, and the interest rate is generally higher because they won’t have an asset they can sell to recover the outstanding debt.

They will, however, adhere to the default process, and if you don’t work with the lender to manage the debt, a default will be listed on your credit report and your credit rating will be negatively affected.

Comparison rate

A comparison rate is meant to help compare one car loan against another. This rate takes into account all the fees and charges you’ll incur over the life of your loan, whereas the interest rate only reflects the interest you’ll be charged.

Loan portability

This is a feature that allows you to switch from one security to another. So if you borrowed against your old or existing car, you could then transfer the security over to your new car after purchasing it.

Top Up facility

If you repay your car loan on time and show good conduct, some lenders will allow you to apply for a “top up” on your loan.

This means you can take your loan back to its original amount once you reach a certain threshold, and use the funds for other personal needs.

For example, at Fair Go Finance, if you have shown good repayment conduct, when you reach repaying 70% of your loan, you’re now able to apply for a top up if you’d like to.

For example, if you had a loan of $10,000 and repaid it down to $7,000, you would be able to apply for a “top up” back to $10,000 – and potentially access additional funds to use for another purpose.

Early repayment penalty fee

Some lenders will charge you a fee if you decide to pay off your loan partially or in full before the end date. If you want flexibility around your repayments, it’s worth looking for a lender that won’t charge this type of fee.

Car loans are just one of many financial commitments we make throughout our lives. We recommend you take the time to understand your car loan features and benefits, to ensure you’re getting the best suited deal for you.


Written by Bessie Hassan – a money expert at Finder


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  • I am 18 years or older
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It can be expensive to borrow small amounts of money and borrowing may not solve your money problems.

Check your options before you borrow:
For more information about other options for managing bills and debts, ring 1800 007 007 from anywhere in Australia to talk to a free and independent financial counsellor.

Talk to your electricity, gas, phone or water provider to see if you can work out a payment plan.
If you are on government benefits, ask if you can receive an advance from Centrelink.

The Australian Government’s MoneySmart Website shows you how small amount loans work and suggests other options that may help you.

* This statement is an Australian Government requirement under the National Consumer Credit Protection Act 2009.