Terms and definitions
We know that financial jargon can be confusing, so we’ve put together a breakdown of terms you might come across when looking at interest rates, to help you gain a better understanding.
Fixed interest rate
A fixed interest rate means that it will not change when either the Reserve Bank of Australia (RBA) change the official cash rate, or P&N Bank decide it appropriate to alter interest rates. A fixed rate can be beneficial due to the certainty it provides over loan repayments. For example, fixed home loan interest rates let you know exactly what your loan repayments will be over the period of the fixed rate loan, allowing you to budget precisely.
Variable interest rate
Variable interest rates may fluctuate with the official cash rate set by the RBA or where P&N Bank decide it appropriate to alter interest rates.. The benefit of variable rates is that your interest payments will become cheaper if the cash rate drops, however at the same time, if the cash rate rises, your interest payments may become more expensive.
A comparison rate combines a loan’s interest rate with any standard fees and charges associated with the loan. The comparison rate is designed to give consumers a better idea of the true cost of the loan in comparison to other financial products on the market. Comparison rates can be a good starting point to weigh up different loan options, but it can be helpful to read the fine print to see what the comparison rate is calculated on.
A term deposit is a type of bank account where the balance is locked for a certain amount of time, decided by you. While you generally can’t access the money until the expiry date, you will receive a guaranteed interest rate, giving you certainty as to what your interest payments will be.
Secured personal loan
A secured personal loan means that you provide an asset such as a motor vehicle as collateral (security) against the amount you borrow. If you were unable the meet your loan repayments and default on the loan, the lender could sell that asset to recover the losses. The benefit of a secured personal loan is that they usually have lower interest rates compared to unsecured loans since there is less risk to the lender.
Unsecured personal loan
An unsecured personal loan means that you are not providing any asset as collateral against the amount you are borrowing. Because this increases the risk to the lender, interest rates for unsecured personal loans are typically higher than for secured personal loans.
A bonus interest rate is a feature of certain bank accounts designed to incentivise you to save money. The bonus interest rate is combined with the account’s standard interest rate when you maintain or grow the balance each month, depending on the specific terms of the account you hold.
A bonus interest rate can help make it easier to reach your savings goals. For instance, if one of your financial goals is to save money to buy a new home, depositing money in a savings account with a bonus interest rate can help you reach it faster.
Australian Credit Licence
An Australian Credit Licence (ACL) is like a driver’s license for credit providers (banks, short term loan lenders etc.) Having an ACL authorises institutions and their representatives to engage in credit activities outlined in the license.
An Australian Credit Licence is issued at the discretion of the Australian Investments and Securities Commission (ASIC) when a credit provider demonstrates they have the necessary education and experience to provide credit products. A credit provider cannot legally operate without an ACL and failing to comply with the requirements of the license can prompt ASIC to cancel it.
P&N Bank’s Australian Credit License is 240701.