10 Definitions of Some Common Car Finance Terms

Finance (Vehicle/Car Finance)

A term referring to borrowing money to purchase a car. The financier lends funds to purchase a car or other vehicle and secures the loan against the vehicle in return until the loan has been finalised.

Residual Value (Balloon)

A lump sum owed to the financier at the end of a loan’s term after all regular monthly repayments have been made over the loan term. For example a car buyer borrows $30,000 over 5 years and elects to have a Residual Value (Balloon) of $10,000 which they will still owe after making their monthly repayments.

Monthly Account Fee

A monthly fee that a bank or credit organization charges on a monthly basis for administration costs related to the operation of your account.

Chattel Mortgage (CM)

A commercial car finance product under which the financier takes out a mortgage over the vehicle (chattel) as security.

Interest Rate

A rate which is charged for the use of money borrowed, normally expressed as a percentage per annum.

Novated Lease

A Novated Lease is a three way agreement between the employee, the employer and the financier. An employee leases a vehicle and the employer agrees to pay the monthly lease rentals from the employee’s pre-tax income.

Payout Fees

A fee applied by some lenders if you payout your loan early which subsequently terminates your finance contract…. Also know as termination fee, early repayment charge.

Retained Interest

Unpaid future interest included in an early payout figure…also known as a Payout Penalty.


The length of a loan, which can be expressed in a monthly or yearly figure.


The financier uses the asset under finance as security in case a borrower defaults on their loan obligation.

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