Glossary
Definitions of terms used in our calculators. For education only; not financial advice.
- Amortisation
- The process of paying off a loan over time with regular payments. Each payment covers some interest and some principal; early on, more goes to interest, and over time more goes to reducing the balance.
- APR (Annual Percentage Rate)
- The annualised rate of interest or cost of borrowing, expressed as a percentage. APR includes the base rate and often fees, so it lets you compare loans and credit on a like-for-like basis. For savings, the equivalent is usually called AER.
- Avalanche method
- A debt payoff strategy where you pay the minimum on all debts and put any extra money toward the debt with the highest interest rate first. Once that is cleared, you move to the next highest rate. This approach usually minimises total interest paid.
- Compound interest
- Interest calculated on the initial principal and on any interest already added. Over time, growth accelerates because you earn interest on prior interest as well as on the principal. Most savings and investments compound (e.g. monthly or yearly).
- Extra payment / overpayment
- Paying more than the required minimum on a loan (e.g. a higher monthly amount or a one-off lump sum). Extra payments reduce the outstanding balance faster, so you pay less interest and can become debt-free sooner, unless your loan has early-repayment restrictions.
- Loan
- Money borrowed that you repay over time, usually in regular instalments. Interest is charged on the outstanding balance. A mortgage is a loan secured against property.
- Minimum payment
- The smallest amount you must pay each month on a debt (e.g. credit card or loan) to stay in good standing. Paying only the minimum usually means more interest and a longer time in debt.
- Mortgage
- A loan used to buy property, secured against that property. Repayments are typically monthly over many years (e.g. 25). The interest rate can be fixed or variable.
- Principal
- The original sum of money borrowed (in a loan) or invested (in savings). Interest is calculated on the principal; as you pay down a loan or add to savings, the principal changes.
- Rule of 72
- A simple way to estimate how long it takes for money to double at a given annual rate of return: divide 72 by the rate (as a percentage). For example, at 6% per year, 72 ÷ 6 = 12 years. It is an approximation and works best for rates roughly between 4% and 15%.
- Savings goal
- A target amount you want to have saved by a certain date. Calculators can show how much you need to save each month (or as a lump sum) to reach that goal, assuming a given rate of return.
- Snowball method
- A debt payoff strategy where you pay the minimum on all debts and put any extra toward the debt with the smallest balance first. When that is cleared, you move to the next smallest. Some people find it motivating to clear accounts quickly, though it can mean paying more interest overall than the avalanche method.
- Term
- The length of time over which a loan is repaid or an investment or savings goal runs. For loans, the term is often given in years (e.g. a 25-year mortgage).