What is a comparison rate?
From July 1 2003, all credit providers are required by law to use the ‘comparison rate’ when quoting interest rates for consumer credit loans such as home loans and personal loans. The comparison rate is a tool to help consumers compare different loans from different lenders based on cost. Comparison rates combine the fees associated with a loan into the interest rate to give you an indication of the ‘true’ cost of the loan. Establishment, valuation and legal fees plus any ongoing fees are combined with the interest rate to calculate a figure you can use to compare loans. This may be higher or the same as the initial interest rate depending on the fee structure of the loan. Keep in mind that focusing on the comparison rate alone can be misleading as repayment flexibility and other features are not included, such as 100% offset account, line of credit potential benefits, redraw costs and switching costs. In other words, comparison rates take into account base costs but ignore features a
A. A Comparison Rate expresses some of the costs of a loan into a single interest rate. The aim of the Comparison Rate is to help consumers make a more informed decision on the costs associated with a loan and help them to compare various 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 are required to use the same formula.
A Comparison Rate expresses some of the costs of a loan into a single rate. The aim of the Comparison Rate is to help consumers make a more informed decision on the costs associated with a loan and help them to compare various 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 are required to use the same formula.
A. A Comparison Rate reflects some of the costs of a loan into a single interest rate. The aim of the Comparison Rate is to help you make a more informed decision on the costs associated with a loan, and help you to compare various 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.
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