Comparison Rates

What is a comparison rate?

A comparison rate is a tool to help consumers identify the true cost of a loan and better understand the associated fees and charges.

It is a rate that includes both interest rate and ascertainable fees and charges that should be added to the loan and can be expressed as a percentage figure.

What must I be provided with a comparison rate?

Comparison rates are only provided for:

Credit transactions that are wholly and predominantly for personal, domestic or household use;

Fixed term credit (i.e.) that is credit that must be repaid within a specific period. (E.g. 2 yr personal loan 5 yr housing loan) Credit cards however are considered as continuing credit as they do not have to be paid within a specific term.

Law was introduced which made it compulsory from 1 July 2003 for:

1. A comparison rate to be included in any advertising for a fixed term consumer credit which contained an interest rate and
2. Consumers must be provided with comparison rate schedules which provide comparison rates for a standard range of loan amounts and terms.

How is a comparison rate calculated?

Comparison rates are calculated using a standard formula that takes into consideration the following variables:

1. Amount of the loan
2. Term of the loan
3. The repayment frequency
4. The interest rate; and
5. The ascertainable fees and charges connected to the loan

Things to be aware of?

The comparison rate however does not take into consideration some factors which may make the loan more attractive, such as fee free banking, or flexible repayment arrangements. You should fully consider these factors if these features are important to you and the effect that they may have on the overall cost of the loan.

Comparison rates do not take into account the extra features of a loan that may result in long term savings such as linked transaction accounts direct salary crediting. At the same time they do not take into account charges such as redraw fees early repayment fees, contingency fees and break costs.

Where can I get further information?

A full copy of the Act and a list of frequently asked questions about Comparison rates are available at: