A comparison rate indicates the true cost of a loan
If you have ever looked for a loan you would most likely come across a little known and sometimes hard to find, term called the comparison rate. The comparison rate is there to allow you to compare the true cost of your loan. For example, a loan may have an advertised rate of 2.85%, but when you add up the associated fees and charges, the real rate of the loan may be over 4.0%
A comparison rate is designed to help you understand the overall cost of a loan based on several relevant factors, rather than just the interest rate. Each comparison rate accounts for the:
- amount of the loan
- loan term
- repayment frequency
- interest rate
- fees and charges
Why pay attention to comparison rates?
The loan with the lowest interest rate isn’t always the cheapest
option. When researching products offered by different providers, you can use
the respective comparison rates as a more accurate indication of loan cost than
you would otherwise get by only comparing interest rates. This can help you
decide which option might suit your needs.
For instance, a loan with a low interest rate but high fees and charges may have a higher comparison rate than a loan with a higher interest rate but low fees and charges. Note that comparison rates only apply to loans with a fixed term, not lines of credit such as flexi loans, as there are too many variables.
Things to keep in mind
Remember that when you look at comparison rates, the loan
amounts and terms don’t cover all possible situations – so they may not be an
accurate reflection of your particular loan. The amounts that a comparison rate
is based on will be in the fine print.
While comparison rates can be a good starting point, they’re not the only thing to consider when shopping around for a personal loan. It’s also important to compare the other features of the loan to see if it works for you.
If you are looking to purchase a property or refinance an existing loan, give our mortgage broking team a call. We have access to over 25 different lenders and aim to match you with the most appropriate loan to suit your needs.