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What is a comparison rate?

What is a comparison rate and what should you look for when choosing a loan?

When it comes to choosing a loan, there are many factors which may influence your decision. One such factor is the interest rate. To help you make this decision easier, the government has legislated that, in addition to displaying the advertised interest rate for a loan product, financial institutions must also display a comparison rate. The formula used to calculate the comparison rate is regulated by the Consumer Credit Code and all financial institutions must use the same method to calculate this rate.

Why is a comparison rate helpful?

The comparison rate is helpful as it gives you a clearer indication of the actual costs of the loan. This helps you to more easily compare loan products from different financial institutions.

What does a comparison rate include?

The comparison rate reflects the actual annual interest rate, together with the loan amount, the term of the loan and the required repayments. It also includes other fees and charges associated with taking out the loan. This may include things such as establishment or set up fees, annual or ongoing fees, valuation and mortgage documentation fees and settlement fees.

In the case of a loan with a fixed rate period, it will also include the revert or ‘roll out’ rate of the loan after the fixed period expires.

What is not included?

The comparison rate does not include items such as Government charges i.e. Stamp Duty or fees which may apply for optional events throughout the loan, such as variation fees or late payment fees.

What should I look out for?

Generally, the closer the comparison rate is to the advertised rate, the less fees and charges there are associated with the loan.

We’re here to help

If you are unsure about the costs associated with a loan, always make sure to ask. For more information on our loans or assistance with applying for a loan, please speak to our friendly staff by calling 1300 131 844.