Here are some words you are likely to run into:
If your loan or account is ‘in arrears’, that means you’ve missed one or more payments. The total arrears is the total amount that you are behind, therefore if you missed a $100 payment last month and a $100 payment this month, your total arrears is $200.
You want to avoid being in arrears - it’s not great for your credit score, and can cause further fees. If you think you might fall behind on repayments it's a good idea to contact your lender as soon as possible.
An ‘asset’ is something of long-term value that is owned by you, or your business. This is often also called ‘collateral’.
Common personal assets are your house and your car. If you are in business you might have different assets, like office computers or factory equipment.
In finance terms, giving authority means giving permission - not putting someone in charge.
When we set up a direct debit for your loan repayments, we will request a payment authority. When you grant this authority, you are saying that we are allowed to withdraw money from your bank account, on a regular schedule and at a pre-set amount.
This is government legislation that lays out many of the rules for both parties in a contract for consumer finance (its full name is the Credit Contracts and Consumer Finance Act). The most important job of the legislation is to protect consumers from being taken advantage of when taking out a loan and to make sure you’re given every opportunity to fully understand what you’re signing.
This refers to someone who will join you in signing the loan details – a friend, spouse, relative or anyone else legally able to sign your loan. The reasons for including a co-borrower are varied, and the co-borrower has the same legal responsibilities under the loan as the borrower.
Credit score or credit history
Credit scores are like haircuts: we all have one, and some are better than others!
Your credit score is a number between 1 and 1,000 that gives banks and other lenders an idea of what your previous financial history is like as well as how good you are at paying your bills. Most credit scores are between 300 and 850; if yours is above 500, you’re doing OK.
Credit scores are based on everything you’ve done financially in the past - so if you’ve had a loan, layby or internet bill and paid it off on time, that’s a good thing for your credit score. Having a negative history - like a bankruptcy, debt collection, or a lot of missed payments - lowers your overall credit score.
If you have a good credit score it’ll be easier for you to borrow money, and you may be able to get a better interest rate.
A borrower may decide to transfer their existing debts from many sources into one loan, paying one interest rate with one regular payment. This may decrease the interest paid overtime, or simply be a more convenient way of managing personal finances. Your MTF Finance representative will help you establish whether a debt consolidation loan is right for your situation.
Learn more about Debt consolidation loans from MTF Finance.
A deposit is an initial amount of money that you pay upfront to confirm a purchase.
For example if you’re buying a $10,000 vehicle you might be asked to pay a $2,000 deposit now (which lets you drive the vehicle away that day), and pay off the remaining $8,000 over time.
When you set up a direct debit, you are giving someone else approval to take regular payments from your bank account.
Direct debits are on a set schedule - usually weekly, fortnightly or monthly, in line with your income - and they are confirmed in writing between you and the company taking the money. They’re a good way to manage your payments - when the payment comes out automatically it’s one less thing to remember!
If your direct debit doesn’t go through because there wasn’t enough money in your account, this is known as a dishonour.
MTF Finance doesn’t charge dishonour fees, although other lenders and your bank might.
Equity is the difference between how much your vehicle is worth, and how much you have left to pay off.
Near the start of your loan, you might be in ‘negative equity.’ This is when the amount you have to pay off is more than your vehicle is worth. This happens because cars can lose value quickly when they are brand new, but it might take you a little longer to take a big chunk off your loan.
‘Positive equity’ is when your vehicle is worth more than the amount you have left to pay off: for example, your car is worth $6,000 and you have only got $4,000 left on your loan.
If you’re in positive equity you might be able to trade up to a better vehicle, for approximately the same payments! You use the “extra” value of your car to act as a deposit for your new vehicle. Talk to us if you’d like to learn more.
A Guarantor is usually (but not always) someone who can make it easier for a lender to accept the borrower for a loan – often they will have a better credit rating, or the ability to cover the loan payments if the borrower can’t. As with a co-borrower, the Guarantor has the same legal responsibilities under the loan as the borrower.
Interest – compound and simple
When you borrow money from any lender, you will need to pay back the interest as well as the original amount that you borrowed. Interest is the cost of borrowing money, and allows the lender to cover their own operating expenses.
‘Simple interest’ is right there in the name! Your interest amount is calculated once, based on the amount you borrow. Let’s say you have a loan of $100, with a 10% interest rate: with simple interest, you’ll pay back $110 in total (your original $100 loan, plus the 10% interest).
Compound interest is trickier. With this, the interest ‘compounds’ - or stacks up - during the loan’s lifetime. Your interest is calculated regularly while you are making payments, based on the amount that is left on the loan.
Mechanical Breakdown Insurance (or MBI)
This is an optional insurance policy designed to protect you from expensive repair bills on your vehicle, should it break down or develop a fault. As with any other insurance product, you pay a premium (which may be added to your regular loan payments) and have obligations to fulfil in order to keep the insurance active. An MBI has a limited range of breakdown conditions that may be covered for each vehicle, so ensure you read and understand your MBI terms and conditions before purchase.
Payment Waiver is an optional MTF Finance product that can cover the cost of your loan repayments due to unforeseen life events, such as illness, injury, unemployment or death. There are a variety of Payment Waiver levels to choose from to suit your situation, and payments for this product can be added to your regular loan repayments, spreading the cost over the term of your loan.
The Personal Property Securities Register (PPSR) is a list of all the high-value items that Kiwis own, along with any lenders that are currently using them as security.
It exists so that MTF Finance, as well as other lenders, can tell if another lender is already using your asset as security - and therefore it isn’t possible to use one $20,000 vehicle to secure five different $10,000 loans!
When you use an asset as security for an MTF Finance loan, we register this on the PPSR for other lenders to see this information. If you’re trading in your existing vehicle or using it to raise cash for a holiday or renovations, we use the PPSR to decide if that asset is available for us to use as security. We’ll get to the word ‘security’ shortly.
The principal is the total amount that you borrow, at the start of the loan.
It does not include any interest - this is calculated and charged separately.
When you apply for personal finance, you may need to provide an asset - like your car, home, or business equipment - as ‘security’ for the loan. This means that if you don’t make your payments, the lender has the right to repossess the asset.
This gives the lender more confidence and lowers their risk, which can make them more comfortable offering the loan. In the vast majority of cases, we use the vehicle you’re purchasing as security.
Loan settlement is paying back the total amount you owe - like settling your tab!
Once you have settled your loan, you can request a loan settlement statement. This outlines how much you borrowed, how long you took to pay it off, and how much interest you paid.
Insurance shortfall is something we all want to avoid. It happens when your vehicle gets written off, and the amount that your insurance company pays out is less than the amount you have left on your repayments.
Say your car is written off, and insurance pays out $4,000 - but you still have $5,000 left on your payments. The missing $1,000 is the shortfall. There are ways to avoid this kind of problem, give us a call if you’d like it explained further.
The terms of a loan set out the agreement between the lender and the borrower, and both parties must agree to the terms before a loan can be made legally binding. It’s vitally important you understand the terms of a loan before signing, and the lender is legally obliged to ensure you understand before a loan can be written.
If you waive something, that means you decide not to enforce it or use your rights to it. When we say ‘waiver’ we are normally talking about our Payment Waiver, an optional protection that you can choose to include with your loan.
When we offer a payment waiver, we are saying: “We know that we have signed a contract with you, but if this specific thing happens, we are not going to enforce that contract.” For example, if your payment waiver includes redundancy cover and you are made redundant then we will waive your repayments while you get back on your feet.
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We hope this has helped you to cut through the jargon – it is important to us that you understand the language and feel comfortable and confident about your lending.
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