Comparison rates explained

Australian law requires lenders and brokers advertising a rate on fixed-term consumer credit to publish a comparison rate alongside it, with equal prominence. It exists because an advertised rate alone can be made to look attractive while the fees do the real damage.

What it includes

The interest rate, plus most compulsory fees and charges: establishment fees, ongoing monthly or annual fees, and other mandatory costs. All of it is expressed as a single annualised percentage.

What it leaves out

• Fees that depend on your behaviour — missed payment fees, dishonour fees, early payout costs
• Government charges such as stamp duty
• Cost savings such as fee waivers
• Redraw fees

This is why every comparison rate carries a warning. It is a comparison tool, not a total cost.

The prescribed examples

Comparison rates are calculated on standard amounts and terms so products can be compared like for like:

If your loan differs from the example — and it almost always will — your actual comparison rate differs too.

The effect people miss

A fixed establishment fee spread over fewer repayments produces a dramatically higher comparison rate, even when the interest rate has not changed.

This is precisely why we apply a two-year minimum term to loans under $10,000. It is also why comparing a short small loan against a long large one using comparison rates alone is misleading.

How to actually use it

1. Compare like with like — same amount, same term, same security type
2. Use the comparison rate to rank products, not to calculate your cost
3. Ask for the total amount payable on your actual loan — that is the number that matters
4. Check separately for early payout costs if you might repay ahead of schedule

The single most useful question you can ask any lender is: what is the total amount I will have paid by the end?

Quick answers

Is a lower comparison rate always better?

For identical loans, yes. Across different amounts or terms, not necessarily — the calculation basis changes.

Why is the comparison rate higher than the interest rate?

Because it includes the fees. If they are identical, the loan has no compulsory fees.

Do business loans have comparison rates?

No. Comparison rates are required for consumer credit only. Business lending sits outside the National Credit Code, which is why comparing commercial offers takes more care.