What Is a Comparison Rate? Everything You Need to Know

What Is a Comparison Rate? Everything You Need to Know

When comparing loans in Australia, the advertised interest rate rarely shows the full picture. That’s why lenders must also display a comparison rate — a legally required figure designed to help you understand the overall cost of a loan.

In this guide, you’ll learn what a comparison rate means, why it exists, what’s included (and what isn’t), and how to use it to compare personal loans, car loans and even home loans. You’ll also learn when to look beyond the comparison rate and consider the full loan structure so you can make more informed choices.

What is a comparison rate and how is it different from the interest rate?

A comparison rate represents the cost of a loan including the interest rate and most fees and charges, expressed as a single percentage. It’s designed to help you look beyond low advertised rates and get a clearer idea of the overall cost of a loan.

In Australia, comparison rates are generally required to be displayed for many consumer credit products under the National Credit Code, which helps reduce the risk of advertising that focuses only on a low interest rate while downplaying fees.

Quick example

Loan A:

• Interest rate: 6%
• Fees: $500
• Comparison rate: 8.2%

Loan B:

• Interest rate: 7.2%
• Fees: $0
• Comparison rate: 7.2%

Even though Loan A advertises a lower interest rate, Loan B may be cheaper overall once fees are considered.

What is the difference between comparison rate and interest rate?

• The interest rate shows the cost of borrowing before fees.
• The comparison rate shows the cost of borrowing including most fees.

Because your CMS can’t display tables, here’s the same information in a simple, scannable format:

Interest on loan amount

• Interest rate: Included
• Comparison rate: Included

Upfront fees

• Interest rate: Not included
• Comparison rate: Included

Ongoing fees

• Interest rate: Not included
• Comparison rate: Included

Government charges

• Interest rate: Not included
• Comparison rate: Included (where applicable)

Break costs, early fees

• Interest rate: Not included
• Comparison rate: Not included

Real money example

You borrow $10,000 at 10% interest for 3 years. There is a $300 establishment fee and a $10 monthly fee.

Even though the interest rate is 10%, your comparison rate may be higher (for example, around 13.5%), depending on the fees and the lender’s calculation model.

Read more:
What is an interest rate?
https://www.credit24.com.au/blog/what-is-interest-rate

What’s included in a comparison rate?

Comparison rates commonly account for:

• The annual interest rate
• Establishment/application fees
• Monthly or annual service fees
• Mandatory ongoing charges
• Transaction fees required to maintain the loan
• Other lender-imposed charges that apply to most borrowers

Example for a car loan

A lender advertises:

• 6.5% interest rate
• $350 establishment fee
• $8 monthly fee

Your comparison rate might be higher than the interest rate (for example, around 8.1%–8.5%), depending on the loan amount and term.

And what’s not included?

Some fees are not included because they vary between borrowers or only apply in certain situations.

Excluded from comparison rates can include:

• Late payment fees
• Early repayment or break costs
• Optional add-ons (such as insurance, warranties, or packages)
• Some government charges (such as stamp duty, registration, if applicable)
• Direct debit dishonour fees
• Fees for extra services not required to maintain the loan
• Variable rate changes (comparison rates are generally based on a standardised assumption)

Because these costs depend on individual behaviour and circumstances, they may not form part of the standard comparison rate calculation.

Why is the comparison rate important?

Comparison rates can help you:

Spot when fees materially change the total cost
An interest rate might look low, but a higher comparison rate can signal meaningful fees.

Compare loans more consistently
A single percentage figure can make it easier to compare products with different fee structures.

Understand affordability over time
Even small differences may add up over the life of a loan, depending on your loan amount and term.

Compare lenders on a like-for-like basis
Because comparison rates use a standard method, they can reduce confusion when reviewing multiple options.

Tips for using comparison rates

Comparison rates are useful, but they work best when you understand how they’re calculated.

Know comparison rates are based on a standard example
Many lenders calculate comparison rates using a standard scenario (often a set loan amount and term). If your loan amount or term is different, the comparison rate may not match your real-world cost.

Check the actual fees and charges that apply to you
Some costs depend on circumstances, such as missed payments or changes to your loan.

Compare similar loan types
Comparison rates are most helpful when comparing loans with a similar purpose, security type (secured/unsecured), and term.

Look beyond the rate
Other factors that may matter include repayment flexibility, loan features, and what happens if your situation changes.

Use comparison rates as a starting point, not the final decision
A good approach is to shortlist options using the comparison rate, then review the full fee schedule and key terms.

Read more:
Fixed or variable personal loan
https://www.credit24.com.au/blog/fixed-or-variable-personal-loan

Read more:
Fixed interest rate
https://www.credit24.com.au/blog/what-is-a-fixed-interest-rate

Want a transparent loan up to $10,000? Meet Credit24

If you’re comparing options, understanding comparison rates can help you ask better questions and feel more confident about what you’re signing up for. Credit24 aims to keep costs clear and easy to understand, including how interest rates and fees work.

Some features customers may look for when comparing lenders include:

• Borrow $500 to $10,000
• Fixed repayment schedule to support budgeting
• No early repayment fees
• Online application process
• Assessment and funding timeframes may vary and depend on eligibility and approval
• Clear loan structure and disclosures
• Australian Credit Licence 422839

Apply now: https://www.credit24.com.au/au/apply/login

Disclaimer

IPF Digital Australia Pty Ltd, trading as Credit24, ABN 59 130 894 405. Australian Credit Licence 422839. The information in this article is general in nature and does not consider your objectives, financial situation, or needs. Lending criteria, fees, and charges apply. For product details, eligibility requirements, and full terms and conditions, visit www.credit24.com.au.