Here’s a quick reference guide to some finance terminology. Learn more about the topics you’re interested in by clicking on the hyperlinked terms:
Community of Property – When people marry in community of property then both spouses’ assets and debts are legally joint. The husband’s assets and wife’s assets and debts belong to both spouses equally.
Affordability – Your affordability is your financial capacity to pay back a loan. Having enough affordability means you have enough spare money at the end of the month to afford a new credit payment.
Creditworthiness – A measure of how much you can be trusted to pay back what you owe, based on your track record of paying back other people or businesses (your credit record).
Total cost of credit – The total amount you end up paying back to a credit provider, made up of the principal debt plus the total interest due and any other fees such as monthly service fees and initiation fees.
Principal debt – The amount you finance, excluding interest and monthly fees.
Contract balance – The amount you still owe on your credit agreement, consisting of the principal debt (what you borrowed) plus the interest, fees etc.
Capital balance – The amount you owe of the principal debt. This excludes interest etc.
Prime lending rate – The benchmark rate set by the South African Reserve Bank for banks to lend to people.
Fixed interest rate – A fixed interest rate stays the same each month and isn’t affected by the prime lending rate.
Linked / variable interest rate – A linked / variable interest rate will go up or down when the prime lending rate goes up or down.
Finance period / repayment term – The length of time you have to pay back the loan. The length of the finance period / repayment term affects your instalment amount and how much interest you pay.
Balloon payment – A large amount that needs to be paid as a lump sum at the end of a vehicle finance contract.
Deposit – An amount you pay in cash before the credit agreement starts.
Comprehensive insurance – Comprehensive insurance generally covers third party claims as well as theft, accident damage and write-off.
Third party insurance – Third party insurance only covers damage to the other person’s car in an accident.
Shortfall insurance – Shortfall insurance covers the difference between your insurance pay-out and what you still owe on your car if it is written off in an accident or stolen.
Depreciation – Depreciation means that your car is worth less as time goes by, so you won’t be able to sell it for the same amount of money you paid to buy it.
Break-even point – The break-even point is when you’ve paid off enough of your debt that the amount you still owe is roughly what the car is worth if you sell it.
Settlement quote – If you want to settle early then you need to ask your credit provider for a settlement quote. It may not be the same as your outstanding balance because you might need to pay a penalty.
Arrears – If you miss one or more payments, you’re in arrears.
Arrear interest – Interest charged on the arrear amount (calculated on the amount that is outstanding).
Over-indebted – You are over-indebted if you are unable to make your monthly payments due to your financial situation.
Debt administration – Under debt administration, a debt administrator manages your finances and pays your credit providers from your salary.
Debt review – When you are under debt review, your debt counsellor declares you over-indebted and negotiates with your credit providers to get your monthly payments reduced.
Voluntary surrender – If you can’t afford the payments on your asset anymore, you can return it. Your credit provider sells it and you pay the rest of what you owe.