What do you mean by comparison rate

Personal Solutions Staying credit smart Understanding personal loans What does comparison rate mean. What is a comparison rate?

A comparison rate indicates the true cost of a loan A comparison rate is designed to help you understand the overall cost of a loan based on several relevant factors, rather than just the interest rate. It considers some of the following: amount of the loan loan term repayment frequency interest rate fees and charges Why pay attention to comparison rates? Related articles. How do personal loan repayments work? Online Banking Terms and Conditions PDF KB This information is general in nature and has been prepared without taking your objectives, needs and overall financial situation into account.

Unsecured Personal Loan repayment terms range from 1 to 7 years. Car Loan repayment terms range from 1 to 7 years. Popular searches. Comparison rate warning. What is a comparison rate? A comparison rate includes the interest rate as well as certain fees and charges relating to a loan. The aim of the comparison rate is to help you identify the true cost of a loan and compare loans and services offered by financial institutions and mortgage providers.

The formula for calculating a comparison rate is regulated by the Consumer Credit Code, and all Australian financial institutions and mortgage providers use this same formula. The comparison rate does not include. Government charges such as stamp duty or mortgage registration fees. Fees and charges associated with loan options or events that may or may not be used by the borrower, such as early repayment or redraw fees. Cost savings such as fee waivers or the availability of interest offset arrangements which can influence the cost of a loan.

Obviously, the comparison rate will be a bit higher than the headline interest rate because it takes into account additional costs. Plus, a lot of home loans are now 30 years or longer. It is important to keep in mind that the home loan with the lowest headline interest rate is not automatically the best deal that you can get.

To illustrate: if one home loan offers an interest rate of 3. On the other hand, if the second home loan has an interest rate of 3.

Even if the second home loan comes with a lower interest rate, its fees and charges pull the rate up, making it higher than the first home loan with a higher interest rate. The comparison rate matters because it can give you an idea of whether loan is good value for money or not, since it indicates whether a loan has any large fees that may not be immediately obvious. By law the Australian government makes all lenders, banks and non-banks, advertise a comparison rate whenever we are advertising home loan rates.

It's a great thing that we have to do this because it gives you the ability to really compare different home loans across different companies equally. Credit providers set their own interest rates, and it's important to know exactly what you're getting when you approach them for a loan. It may be hard to compare home loans with different interest rates and fees, so the lender has a responsibility to provide a comparison rate.

For example, home loan A might have an interest rate of 5. Cumulatively, this means that the comparison rate is 5. By contrast, home loan B might have an interest rate of 5. That means the total comparison rate amounts to 5. The important lesson here is that while home loan B has a lower interest rate than home loan A, its comparison rate is higher than that of home loan A - and this is what you will really be paying.

So keep in mind that the 'lowest' price - the interest rate alone - is not always going to be the best deal for you.