What will your loan really cost you?
Comparison rates take the hard work out of comparing the cost of
different loans, but they are not the only thing to consider when
you're shopping around for a loan. Here we explain what comparison
rates are, how to use them, and other things to consider when you
are looking for a loan.
What is a comparison rate?
A comparison rate is a rate that helps you work out the true
cost of a loan. It reduces to a single percentage figure the
interest rate plus most fees and charges relating to a loan. The
comparison rate allows you to compare loans from different lenders
to find out how much it will cost you.
How to use comparison rates
Always compare interest rates, product features, and fees and
charges. Even a small difference in the interest rate can make a
big difference to your payments over time.
It is difficult to compare home loans that have different
interest rates and fees. This is why credit providers must give a
comparison rate when they advertise a rate or a weekly payment for
home loans. The comparison rate includes the interest rate or
weekly repayment amount, plus most fees and charges.
||Fees & charges
|| Comparison rate
|Home loan A
|Home loan B
In the example above, home loan B will cost less than home loan
A, even though home loan A has a lower interest rate.
How important are
Checking the comparison rate is a great way to compare the cost
of different loans, but it is not the only thing to consider when
you are deciding which loan is right for you. As well as the
comparison rate, it is important to think about what features each
loan offers, and how important these are to you. For example, if
you are in the market for a home loan, you might want one that has
a redraw facility, a linked offset account, or the ability to make
Visit our webpage on choosing a home loan for tips on
some things to consider when looking for the home loan that best
suits your needs.
Check the comparison rate to find out how
much the loan will really cost, and always compare the features of
each loan to make sure you find the one that best suits your
Last updated: 26 Jul 2016