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The power of comparison rates

With so many lenders and borrowing options out there, finding the right personal loan can feel like a bit of a maze. In this guide we’ll help you navigate every twist and turn to avoid hitting a dead end.

What's in this guide?

All about advertised rates

To understand comparison rates, you need to know what an advertised rate is first. The advertised rate or headline rate is that big number followed by % p.a. that you typically see on loan commercials.

It represents the interest rate on the loan – a percentage of your loan that you pay usually per year for borrowing. The headline rate alone doesn’t take any additional fees or charges that may be associated with the loan into account.

Q1: So, what is a comparison rate?

A comparison rate is a regulatory requirement that lenders need to follow. It’s a rate that provides a clearer picture of the overall cost of your loan by incorporating additional costs we’ll get into these a little later, with the aim of making it easier to compare your options.

Comparison rates are a good way to get an accurate idea of what you’ll really end up paying if you take out the loan. 

Joanne, Chief Operating Officer

Q2: What is a competitor rate?

These can be easily confused because they sound so similar. A competitor rate is a rate offered by a different lender. While you can certainly compare competitor rates amongst each other, they are different from comparison rates.

Q3: What is included in a comparison rate?

Some factors included in a comparison rate are:

  • Establishment fees

    These are common charges you pay upfront when you settle your loan.

  • Ongoing fees

    Some lenders charge monthly or annual fees.

  • Interest

    A second time for those in the back: interest is a percentage of your loan that is added usually per year on top of the amount you've borrowed. It acts as a fee for borrowing money.

  • Your payments

    These are the total number of repayments you'll make based on your loan terms.

  • Loan term

    The date by which you've agreed to pay the loan back.

Q4: What isn't included in a comparison rate?

Some fees that might not be included in a comparison rate:

  • Early repayment fees

    Can you believe it’s possible to be punished for being on top of your repayments? Some lenders charge you for paying out your loan early. If you couldn’t tell, we're not down with these.

  • Redraw fees

    Charges for withdrawing money you've already paid back into your loan.

  • Bonuses or fee waivers

    Since these can change all the time, so they're typically not included.  

Q5: How can comparison rates help you?

At first, you might think the interest rate is going to hit your bank balance the hardest, but think again. Although interest is a big factor in choosing a personal loan, extra fees like the ones listed above can actually make a car loan with a lower interest rate more expensive in the long run.

Remember, when you see a comparison rate in an ad or on a website, it won’t speak to your exact details. Many are based on a $10,000 loan with a repayment term of 3 years or a $30,000 loan with a repayment term over 5 years.

Still with us? While these details might not match your exact needs, they serve as a way to put each loan on equal footing to give consumers a view on like-for-like costs. 

A comparison rate might look like this:

Loan

Interest Rate

Other fees

Comparison rate

Lender A

7.5%

2.5%

10%

Lender B

8%

1.5%

9.5%

Lender A’s loan might look more appealing because of its lower interest rate. But when incorporating the other costs associated with the loan such as higher establishment fees and ongoing fees calculated and expressed in the table as a percentage, Lender A’s loan could actually be more expensive to a consumer over the life of the loan. 

Comparison rates are just one piece of the puzzle when it comes to finding the right loan for you.

Did you find this content helpful?

Disclaimer: This article contains general information only, and is not general advice or personal advice. Wisr Services does not recommend any product or service discussed in this article. You must get your own financial, taxation, or legal advice, and understand any risks before considering whether a product or service discussed in this article may be appropriate for you. We have taken reasonable efforts to ensure that the information is accurate at the time of publishing, but the information is subject to change. We may not update the article to reflect any change.

Joanne is a respected leader of multiple disciplines within Banking, with 17+ years’ experience ranging from credit risk, product management, pricing, analytics and strategic project delivery.

Joanne, Chief Operating Officer

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