What is the comparison rate?
The comparison rate is an indicative interest rate that combines the nominal interest rate with any foreseeable fees and charges associated with the loan, to help you obtain a more comprehensive picture of what your personal loan is going to cost you over the life of the loan.
While the comparison rate helps you to compare one personal loan against another on a cost basis, it’s also important to consider the features of a loan such as redraw and direct debit facilities, loan portability and repayment options that increase the flexibility of your loan and can make a huge difference to the overall cost of a personal loan.
What costs does the comparison rate include?
- Nominal interest rate
- Loan approval and any other up-front fees
- Known ongoing fees
What does the comparison rate exclude?
- Government and statutory fees – as these are standard regardless of lender or loan type
- Insurance products
- Fees and charges that are event based and may or may not apply throughout the life of your loan. Eg. Statement fees or early repayment fees.
How do you calculate the comparison rate?
The comparison rate is calculated in accordance with a standard formula, specified by the regulations, which takes into account;
- The amount borrowed
- The term of the loan
- The frequency of repayments
- The interest rate
Ascertainable fees and charges connected with the loan except for government charges.
What is a comparison rate schedule?
A comparison rate schedule details the various rates that apply to the lenders products at various loan terms and various loan amounts.