What Are Comparison Rates?
A comparison rate is designed to help you understand the true cost of a loan by including both the interest rate AND most fees and charges. It's expressed as a single percentage, making it easier to compare loans from different lenders.
Why Comparison Rates Matter
The advertised interest rate doesn't tell the full story. A loan might have a low interest rate but high fees, making it more expensive overall than a loan with a slightly higher rate but fewer fees.
| Loan | Interest Rate | Fees | Comparison Rate |
|---|---|---|---|
| Loan A | 6.99% | $800 upfront + $10/month | 8.15% |
| Loan B | 7.49% | $250 upfront + $0/month | 7.75% |
In this example, Loan B has a higher interest rate but is actually cheaper overall due to lower fees.
How Comparison Rates Are Calculated
By law, comparison rates must be calculated using:
- A loan amount of $30,000
- A loan term of 5 years
- Monthly repayments
This standardisation allows fair comparison between different loan products.
What's Included in Comparison Rates
- Application fees - One-time setup costs
- Ongoing fees - Monthly account keeping fees
- Interest charges - Based on the advertised rate
What's NOT Included
- Government charges - Stamp duty, registration
- Early repayment fees - Penalties for paying off early
- Redraw fees - Charges for accessing extra payments
- Default fees - Late payment charges
The comparison rate is a useful guide, but always read the full terms and conditions. Fees not included in the comparison rate can still add significant costs.
Limitations of Comparison Rates
Comparison rates have limitations you should understand:
- Standard calculation - Based on $30,000 over 5 years, which may not match your loan
- Missing fees - Not all fees are included
- No flexibility comparison - Doesn't show loan features like extra repayments
How to Use Comparison Rates Effectively
- Use as a starting point - Filter out obviously expensive loans
- Compare similar products - Only compare like with like
- Calculate your actual cost - Ask lenders for total repayment figures based on your loan amount
- Consider features - Extra repayments, redraw, flexibility
Frequently Asked Questions
Do comparison rates apply to all loans?
Comparison rates are required for consumer credit products in Australia, including personal loans and car loans. Business loans may not display them.
What's a good comparison rate for a car loan?
In 2026, competitive comparison rates for borrowers with good credit range from 7-9% for secured car loans. Rates below 7% are excellent.
Should I always choose the lowest comparison rate?
Not necessarily. Consider loan features, lender reputation, and your specific needs. The cheapest loan isn't always the best fit.