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.
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.
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 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.
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.
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.
Pre-approved finance is when you organise your lending before you make your purchase. It means that you can walk into a car yard or browse Trade Me, knowing how much you are able to spend before you decide on your perfect vehicle.
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.
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.
You are protected by responsible lending laws. Because of these protections, the content of this page is not regulated financial advice.
This means that duties and requirements imposed on people who give financial advice do not apply to this content. This includes a duty to comply with a code of conduct and a requirement to be licensed.
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Introducing our new ‘plain English’ loan agreement
Recently, we rewrote one of our most important documents, the loan agreement that outlines the terms of your lending with MTF Finance. After a year of work behind the scenes and consultation with our customers, our new plain English loan agreement was launched on 30 November 2020.
So why did we decide to make this change, and what can our customers expect?