Car finance has its own vocabulary. Here are the terms you'll encounter when using the calculator, reading a loan contract, or comparing lenders in Australia.
Loan fundamentals
- Principal
- The amount you actually borrow — the vehicle price plus any capitalised fees, minus your deposit and trade-in equity.
- Interest rate (p.a.)
- The annual percentage rate applied to your outstanding balance each period. Most Australian car loans use a reducing-balance method, meaning interest is charged only on what you still owe.
- Comparison rate
- A rate that combines the interest rate and most fees (establishment fee, monthly service fees) into a single figure, making it easier to compare products. Calculated on a standard $30,000 / 5-year basis per ASIC's Regulatory Guide 234. It doesn't include conditional fees (e.g., early exit penalties).
- Repayment
- The periodic payment (weekly, fortnightly, or monthly) that covers both the interest charged for that period and a portion of the principal. Early in the loan, most of each payment is interest; later, more goes to principal.
- Amortisation schedule
- A table showing every repayment over the life of the loan, split between interest and principal. Motorate's calculator shows this as the "Balance Over Time" chart.
- Term
- The loan duration in months. Common terms are 36, 48, 60, and 84 months. Longer terms reduce each repayment but increase total interest paid.
- Balloon payment / residual
- A lump sum payable at the end of the loan term. It lowers regular repayments but means you owe a large amount at maturity — you can pay it, refinance it, or (for a lease) hand the vehicle back. For novated leases, the ATO sets minimum residual percentages by term.
Loan types and products
- Secured car loan
- The vehicle is held as security (collateral). Rates are lower than unsecured loans because the lender can repossess the car if you default. Most dealer-arranged finance is secured.
- Unsecured personal loan
- No security required — the lender relies solely on your creditworthiness. Accepts any vehicle (including older or grey-import cars), but rates are typically 2–4% higher.
- Chattel mortgage
- A business finance product where the borrower takes ownership of the vehicle immediately, but the lender holds a mortgage over it as security. Suits businesses claiming GST and depreciation.
- Finance lease
- The lender (lessor) owns the vehicle; you (lessee) make fixed payments for the term and typically have a residual buyout option at the end. Common for businesses seeking off-balance-sheet treatment.
- Novated lease
- A three-way arrangement between you, your employer, and a financier. Your employer makes lease payments from your pre-tax salary, reducing your taxable income. FBT applies but can be offset via ECM. See our novated lease guide for detail.
- Operating lease
- Effectively a long-term rental — you pay for use of the vehicle, not for ownership. The lessor carries the residual value risk. Common in fleet management.
Fees and charges
- Establishment fee
- A one-off fee charged when the loan is set up. Ranges from $150 to $600 at most lenders. Included in the comparison rate calculation.
- Monthly service fee
- An ongoing account-keeping fee, typically $5–$15/month. Adds up: $10/month over 60 months is $600 in additional cost.
- Early exit / break cost
- A penalty for repaying a fixed-rate loan before the end of the term. Reflects the lender's cost of unwinding their funding position. Variable-rate loans generally allow early repayment without penalty.
- Redraw fee
- A charge for accessing extra repayments you've made above the minimum. Not all lenders offer redraw on car loans.
On-road costs
- Stamp duty
- A state government tax payable on the purchase of a motor vehicle, calculated on the purchase price (and sometimes the vehicle's dutiable value). Rates and thresholds vary significantly by state — NSW is among the highest, while the ACT uses a different sliding scale.
- LCT (Luxury Car Tax)
- A federal tax of 33% applied by the ATO to vehicles exceeding the LCT threshold (currently $80,567 for standard vehicles, $91,387 for fuel-efficient vehicles for FY2024–25). Paid at the dealer level but passed to the buyer.
- CTP (Compulsory Third Party) insurance
- Mandatory insurance covering personal injury to other people if you're in an at-fault accident. Bundled with registration in some states (e.g., QLD, SA, TAS) or purchased separately (e.g., NSW, ACT).
- Drive-away price
- The total out-of-pocket cost to drive the car away: vehicle price + dealer delivery charges + stamp duty + registration + CTP. This is what you should compare between dealers, not the driveaway "from" price in ads.
Novated lease & FBT terms
- FBT (Fringe Benefits Tax)
- A tax paid by employers on non-cash benefits provided to employees, including novated leases. Calculated under the statutory formula: (vehicle cost × statutory fraction × days held / 365). The employer pays FBT but typically recovers it from the employee's packaging arrangement.
- Statutory fraction
- Currently 20% for all vehicles regardless of kilometres travelled (post-2011 reform). Multiply by the vehicle's base value to get the taxable value before gross-up.
- Gross-up (Type 1 and Type 2)
- A factor applied to the taxable value to convert it to a pre-tax equivalent before applying the FBT rate. Type 1 (1.8868) applies when the employer can claim GST credits; Type 2 (2.0802) applies when they can't. Most employers are Type 1.
- ECM (Employee Contribution Method)
- A post-tax contribution made by the employee directly towards the vehicle's running costs. Reduces the FBT taxable value dollar-for-dollar. Effectively converts some pre-tax packaging benefit into a post-tax contribution, but can still result in a net tax saving depending on your marginal rate.
- ATO residual
- The minimum residual value (as a percentage of the vehicle's cost) prescribed by the ATO at the end of a novated lease term. Ranges from 65.63% (12-month term) down to 28.13% (60-month term). Setting a residual below these percentages attracts additional FBT.
- LVR (Loan-to-Value Ratio)
- The loan amount expressed as a percentage of the vehicle's value. A $45,000 loan on a $50,000 car is 90% LVR. Higher LVR = higher risk for the lender = potentially tighter lending criteria or higher rate.
Use Motorate's calculator to model any of these scenarios with real numbers for your situation.