A comparison rate combines a loan’s interest rate with most of its fees and charges into a single percentage, so loans can be compared on cost. Australian credit law requires lenders to display one alongside any advertised home-loan or personal-loan rate, calculated on a standardised basis.
The point of the comparison rate is to stop a low headline rate hiding high fees. The calculation folds upfront and ongoing charges into the interest rate over the life of a standardised example loan, producing one number that reflects rate and fees together. The requirement comes from the National Credit Code.
The standardisation is also the measure’s main limitation. For home loans the legislated example is a set amount over a set term, which rarely matches a real loan’s size or duration, and the calculation excludes some costs, such as government charges and fee waivers, and gives no weight to features like offset accounts.
The Regulations name the loans the calculation runs on. Regulation 97 of the National Consumer Credit Protection Regulations 2010 designates six amount-and-term pairs, from $250 over two weeks up to $150,000 over 25 years, with $30,000 over five years among them. Section 161 of the National Credit Code sends an advertised product to whichever pair most closely represents its typical amount and term. Suppose a $600 upfront fee on a loan advertised at 6 per cent, repaid monthly. On the $150,000 pair the repayment is $966.45, the fee leaves $149,400 advanced, and the rate that discounts 300 repayments back to that figure is 6.04 per cent. Move the same $600 to the $30,000 pair and the repayment is $579.98, the advance $29,400, and the comparison rate 6.84 per cent. The fee never changed; the uplift it adds to the advertised rate is close to twenty times larger on the smaller, shorter pair.
Tradergy’s rate tables present averages of advertised rates as neutral reference data. A comparison rate helps rank two loans’ costs on the same yardstick; it says nothing about which loan suits a particular borrower.
Longer read: When a comparison rate must be shown, and what has to go with it. A comparison rate is compulsory only where an advertisement states an interest rate, and the same Part of the National Credit Code then dictates its prominence, the words that must accompany it, and how long the advertisement survives a rate change.
See the home-loan rate tables for where this term shows up in practice.
Related terms
Loan-to-value ratio (LVR) · Offset account · All terms
Primary authority: Moneysmart: choosing a home loan. Definition reviewed against the authority’s published material; this page is reference information, not advice.
Common questions
Why is the comparison rate higher than the advertised rate?
Because it includes the loan’s fees as well as its interest. A loan with meaningful upfront or ongoing charges will show a comparison rate noticeably above its headline rate, which is precisely the signal the measure exists to give.
Does the comparison rate capture the whole cost of a loan?
No. It is calculated on a standardised example and excludes items such as government charges, some event-based fees, and the value of features like offsets. It standardises comparison between products rather than pricing any individual borrower’s loan.
Where must comparison rates appear?
Wherever a lender advertises an interest rate for a regulated consumer loan, Australian credit law requires the comparison rate to appear alongside it, together with a warning about its standardised basis. The requirement covers home loans and personal loans, not business lending.