Debt Consolidation, Translated: A Plain English Glossary

The loan and its structure

Debt consolidation

Combining multiple debts (credit cards, personal loans, car loans, ATO debt, BNPL balances) into a single loan with one repayment. For homeowners, this usually means refinancing the debts into the home loan, because home loan rates are significantly lower than unsecured rates. The full picture is in our complete guide.

Refinance

Replacing your existing home loan with a new one, with your current lender or a different one. Refinancing is the vehicle for most debt consolidations: the new loan is large enough to pay out the old mortgage plus the other debts.

Equity

What your property is worth minus what you owe on it. A $700,000 home with a $450,000 loan holds $250,000 of equity. Equity is the raw material of debt consolidation: it is what allows other debts to be folded into the property loan.

Cash out (equity release)

Borrowing more than the amount needed to pay out your existing home loan, with the extra released for a stated purpose. Paying out other debts is one of the most common cash out purposes, and lenders will want evidence, usually payout letters for the debts being cleared.

LVR (loan to value ratio)

The loan amount divided by the property value. A $480,000 loan on a $600,000 property is an 80% LVR. LVR decides which lenders are in play and what pricing looks like: 80% or below is the comfortable zone, and above it Lenders Mortgage Insurance usually applies.

Loan split

One home loan divided into separate accounts, each with its own balance and settings. In consolidation, a split is the classic structure fix: the consolidated debts sit in their own split with a plan to clear it fast, instead of dissolving into the 30-year mortgage. Our BNPL guide shows why this matters so much for short-term debt.

Offset account

A transaction account linked to your home loan. Every dollar sitting in it reduces the balance your interest is calculated on. After a consolidation frees up monthly cash flow, an offset is one of the places that surplus can quietly work for you.

Redraw

Access to extra repayments you have made above the minimum. Similar effect to an offset but built into the loan itself, sometimes with conditions on access.

Principal and interest (P&I)

Repayments that cover the interest and chip away at the balance. The standard structure for owner occupied lending, and the one that actually pays a loan off.

Interest only

Repayments that cover only the interest for a set period, usually one to five years. The balance does not move. Lower repayments now, more total cost later, and lenders assess it more cautiously. Occasionally the right short-term tool, never the long-term plan.

Settlement

The day the new loan completes. In a consolidation, the new lender pays each old debt out directly and the accounts are closed. This is the day five repayments become one.

Payout figure

The exact amount needed to close a debt on a given day, including interest and any fees to that date. Supplied in writing by each existing lender, and required by the new lender before settlement.

How lenders assess you

Serviceability

A lender's calculation of whether your income can support the proposed loan after living expenses and every existing commitment. Consolidation often helps here in a way people do not expect: replacing several high repayments with one lower one can make your position assess more comfortably than before.

Assessment rate (serviceability buffer)

The rate a lender tests your repayments at, set above the rate you will actually pay. Under APRA guidance the buffer is 3 percentage points above the loan rate. It exists so a rate rise does not break your budget, and it is why a lender can decline a loan you believe you can afford.

Comparison rate

The interest rate with most fees and charges folded in, designed to show the truer cost of a loan. Required by law in Australian loan advertising. Useful for comparing like with like, though it assumes a standard loan size and term that may not match yours.

LMI (Lenders Mortgage Insurance)

Insurance that protects the lender if the borrower cannot pay, typically required above 80% LVR, with the premium paid by the borrower. Not to be confused with insurance that protects you: it does not.

Conduct

How your accounts have been run, as your statements show it: on-time repayments, overdrawn accounts, dishonours, gambling transactions, BNPL frequency. Assessors read conduct as character. Clean mortgage conduct in particular can carry a file with other bruises on it.

Your credit file

Credit score

A number summarising your credit file. Each bureau calculates its own score on its own scale (Equifax up to 1,200, Experian and illion up to 1,000), so you have several scores, not one. Lenders often care more about what is actually on the file than the number itself. Full detail in our credit score guide.

Credit bureau

A company holding credit files on Australian consumers: Equifax, Experian, and illion, with Experian having acquired illion in late 2024. You are entitled to a free copy of your report from each bureau, and checking it never affects your score.

Comprehensive credit reporting (CCR)

Australia's system of reporting positive credit behaviour, not just failures. On-time repayments build a visible track record, which means a file can actively recover, not just wait for bad listings to expire.

Repayment history information (RHI)

The month-by-month grid on your file showing whether each credit account was paid on time, covering the most recent 24 months. A few late markers with a clean recent run reads very differently from a file that is currently behind.

Default

A debt of $150 or more, at least 60 days overdue, formally listed after the required notices. Defaults stay on file for five years, paid or not, though a paid default reads better to a lender than an unpaid one. Pathways with defaults are covered in our defaults guide.

Hardship arrangement

A temporary repayment variation agreed with a lender during financial difficulty. Since mid-2022 these appear as notations alongside your repayment history for 12 months. Entering hardship is not a default, and lenders increasingly read a completed hardship arrangement as a problem handled. More in the hardship guide.

Credit enquiry

The record left when a credit provider checks your file for an application. Enquiries sit on file for five years, and a burst of them in a short window reads as credit stress. This is why our process matches your file to lender policy before anything is submitted: one well aimed application beats five hopeful ones.

Court judgment

A court order recording that you owe a debt, listed for five years. Serious, but not terminal: specialist lenders assess judgments in context, especially once paid.

Part 9 debt agreement

A formal, legally binding arrangement to settle unsecured debts for less than the full balance, under Part IX of the Bankruptcy Act. It is an act of insolvency: it goes on your credit file and the NPII, and it closes most mainstream lending doors while active. Options during and after one are covered in the Part 9 guide.

Bankruptcy

The formal insolvency process, normally lasting three years and one day. It stays on your credit file for five years from the start date or two years after discharge, whichever is later, and permanently on the NPII. Lending after discharge exists, on specialist terms first. See refinancing after bankruptcy and consolidation vs bankruptcy.

NPII (National Personal Insolvency Index)

The permanent public register of Australian insolvency proceedings, including bankruptcies and Part 9 agreements. Credit file listings expire; the NPII does not.

The lending landscape

Prime lender

A mainstream lender, typically a bank, with the sharpest rates and the strictest credit criteria. Prime is where a recovery strategy aims to land: consolidate with whoever will approve the file today, rebuild, then refinance to prime pricing.

Specialist lender (non-conforming)

A lender whose policies are built for files banks decline: defaults, arrears, hardship history, ATO debt, complex income. Rates sit above prime, in part because these lenders carry risk fees on impaired files. Choosing the right specialist for a specific file is a genuine skill, and the wrong match costs real money. Start with the bad credit guide.

Private lender

A non-bank source of fast, short-term secured finance at significantly higher cost, usually secured by caveat or second mortgage. Private money solves emergencies and creates its own if you stay in it. Getting out is its own playbook: refinancing out of a private loan.

Caveat loan

A short-term loan secured by lodging a caveat over your property title, blocking other dealings until it is repaid. Fast to get, expensive to hold, and a complication for any refinance until cleared.

Second mortgage

A loan secured against your property behind your existing home loan. The second lender only gets paid after the first if things go wrong, so rates are higher and appetite is thinner. Often consolidated into a single first mortgage at the first opportunity.

BNPL (Buy Now Pay Later)

Short-term instalment credit from providers like Afterpay, Zip, Klarna and humm. Since 10 June 2025, BNPL providers must hold an Australian Credit Licence under the low cost credit contract rules, and lenders treat active accounts as commitments. How it affects a consolidation: the BNPL guide.

Payday loan (SACC)

A small amount credit contract: a short-term loan up to $2,000 charging fees rather than interest. The most expensive mainstream credit in Australia relative to its size, and the strongest cash flow warning signal a bank statement can carry. Covered in the payday loan guide.

Mortgage broker

A licensed intermediary who assesses your position, matches it against lender policy across a panel, and manages the application through to settlement. Australian brokers owe consumers a best interests duty, a legal obligation banks selling their own products do not carry.

Credit representative

A person or business authorised to provide credit assistance under another company's Australian Credit Licence (ACL). This is the standard structure for broking firms. Loop Loans operates as Credit Representative 534480 under ACL 389328.

Where to next

If a term brought you here from a decline letter, a broker conversation, or a 2am search, the guides go deeper:

• The complete guide to debt consolidation in Australia: the full picture, start to finish
• Debt consolidation with bad credit: the specialist pathways when your file has history
• What debt consolidation really costs: the honest numbers conversation