Trailer Finance Terms Explained: Balloon, Residual, LVR and More
Finance comes with its own vocabulary. This glossary explains the terms you're most likely to hear when financing a trailer.
Loan types
Asset finance: finance secured against the item being bought, in this case the trailer. Because the trailer is the security, it's usually cheaper and easier to get than unsecured lending.
Chattel mortgage: a business loan where you own the trailer and the lender holds security over it. See chattel mortgage.
Finance lease: the lender owns the trailer and leases it to your business, with a residual at the end. See finance lease.
Commercial hire purchase: the lender owns the trailer until your final payment, when ownership passes to you.
Consumer loan: finance for personal (non-business) use, covered by consumer credit laws.
Loan features
Balloon: a lump sum left owing at the end of a loan, which lowers your regular repayments.
Residual: the equivalent of a balloon on a finance lease.
Term: how long the loan runs, usually one to seven years for trailers.
Comparison rate: a rate that includes most standard fees, required in consumer loan advertising.
Establishment fee: a one-off fee for setting up the loan.
Brokerage: a fee charged by a broker, which must be disclosed to you.
Early termination fee or break cost: a charge for paying out a fixed-rate loan early.
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LVR (loan-to-value ratio): the loan amount as a percentage of the trailer's value. A lower LVR means less risk for the lender.
Low doc: an application using simpler evidence of income, such as bank statements or BAS, instead of full financials.
Full doc: an application supported by tax returns and financial statements.
Credit enquiry: a record on your credit file that a lender has assessed an application.
Predominant purpose: whether the trailer will mainly be used for business or personal purposes, which decides the type of finance.
Trailer and registration terms
PPSR: the Personal Property Securities Register, where lenders register their security over financed assets. Search it before buying any used trailer.
VIN: vehicle identification number, used to identify the trailer.
ATM (aggregate trailer mass): the total mass of a loaded trailer when not coupled to the towing vehicle.
GTM (gross trailer mass): the mass transferred to the trailer's axles when it's coupled and loaded.
Tax terms
GST credit: the GST a registered business can claim back on a business purchase.
BAS: business activity statement, the form businesses use to report and claim GST.
Depreciation: the decline in a trailer's value over time, which owners can generally claim as a business deduction.