What is a comparison rate?
When determining the true cost of a loan, it is important to consider not only the advertised interest rate, but also other fees and charges.
A comparison rate helps take these factors into consideration by calculating the additional costs associated with a loan (such as up-front or monthly charges definitely payable) and adding them to the advertised interest rate in accordance with a government-prescribed formula. This total is then expressed as another interest rate - aimed at giving consumers a clearer picture of the costs of the loan.
Although comparison rates are helpful, you should also evaluate the features and benefits a loan offers before deciding if it is suitable. Features that aren't included in comparison rates, such as free transactions or redraw facilities can provide you with greater flexibility, which can ultimately save you money.
However the comparison rate does not take into account other fees such as arrears fees and government expenses.