What is a Comparison Rate?

The Comparison Rate is an indicative interest rate that is designed to help Members identify the 'true cost' of a loan. The Comparison Rate takes into account the interest rate and ascertainable fees and charges that relate to the loan, in an attempt to express some of the costs of a loan into a single (comparison) rate.

Ascertainable fees and charges are those that are definitely payable during the life of the loan - such as application fees, monthly or annual charges, cost of valuation and legal fees.

What isn't included?

The Comparison Rate does not include fees and charges that may occur or are based on some future "event" - such as redraw, early termination fees, progress payments or fees charged by some institutions when you decide to switch lenders. In addition, government and statutory charges are not included - as these are standard irrespective of the type of loan or who the lender is.

So, whilst the Comparison Rate is a useful tool for comparing the cost of different loans, it should be remembered that it doesn't provide the total picture.

What to bear in mind

It's important to consider all the features and benefits of the loan - rather than only focusing on the Comparison Rate. A Comparison rate does not take into account all the factors that should be considered when comparing different loan offers from different financial institutions / lenders. Benefits such a redraw, 100% offset and ability to make additional repayments / flexible repayment periods are not included within a Comparison Rate - but they can make a difference to the attractiveness of a loan.

Points to remember about comparison rates

• A comparison rate can be a useful tool for comparing the cost of different loans, but it is important to consider all of a loan's features and not just focus on the comparison rate. Remember that the comparison rate does not include government fees and charges or fees and charges which will only be charged in certain circumstances. Therefore the comparison rate may not provide a complete picture of the total cost of the loan. A comparison rate also does not take into account some factors which may make a loan more attractive, such as fee free banking, or flexible repayment arrangements. You should give careful consideration to whether these features are important to you and the effect they will have on the cost of the loan.
• The amounts and terms shown on a comparison rate schedule do not represent all the possible combinations of amounts and terms. This means the amount and term of your particular loan may not be included in the comparison rate schedule. In order to get an idea of the comparison rate which applies to your loan, look at the comparison rate for the amount and term closest to the amount and term of your loan. Credit providers, finance brokers and suppliers linked to credit providers are not required to provide you with a comparison rate for your particular loan amount and term, but some may be willing to do so if you ask them.
• Credit advertisements and comparison rate schedules may sometimes state whether a comparison rate is based on a secured loan (that is, a loan for which the credit provider takes a mortgage over property) or an unsecured loan (where no mortgage is taken). This is because there can be a significant difference in the comparison rate for a secured loan and an unsecured loan of the same value, due to the higher interest rates usually charged for unsecured loans and the higher up-front fees for secured loans. If a comparison rate is based on a secured loan, it is unlikely to be accurate for an unsecured loan of the same value, and vice versa.

Comparison Rate Schedule

Comparison Rate Schedule