Comparison Rate Calculator Australia

What is a comparison rate?

A comparison rate takes the advertised interest rate on a loan and folds most of the fees in with it, so the whole cost of borrowing shows up as a single percentage. It is there to solve one problem: a lender can quote a low interest rate and then load fees on top, so the rate on the ad tells you less than it seems. Two loans at the same advertised rate can cost very different amounts once fees are counted, and the comparison rate is the number that shows the difference. Under the National Credit Code, Australian lenders must show a comparison rate wherever they advertise an interest rate on a consumer loan.

Comparison rate vs interest rate

The interest rate is the cost of the money alone. The comparison rate is that interest rate plus the fees, written as one rate. Because fees only add to the cost, the comparison rate is always equal to or higher than the advertised rate. When the two are the same, the loan has no included fees. When the comparison rate sits well above the advertised rate, fees are doing a lot of the work, and the loan is dearer than the headline suggests. Line up comparison rates against each other and you are comparing like for like.

How the comparison rate is worked out

This calculator starts from the repayment at the advertised rate, using the standard amortisation formula. It adds the ongoing fee to each repayment, and treats the upfront fees as reducing the amount you receive from the lender. It then solves for the single rate that ties those payments back to the loan amount, which is the comparison rate. The result captures both the interest and the fees in one figure, the same idea the National Credit Code uses. Redraw fees, early exit fees and fees that depend on how you use the loan are left out, because they vary from borrower to borrower.

The standard $150,000 over 25 years basis

To keep advertised comparison rates comparable, the rules set a fixed reference loan: $150,000 over 25 years. Every lender works out the comparison rate on its ad against that same loan, so the rates line up. The catch is that fees are a fixed dollar amount, so spreading them across a different loan size or term gives a different comparison rate. On a larger loan the same fees weigh less and the comparison rate sits closer to the advertised rate. That is why the calculator lets you enter your real figures, not just the standard ones, so you see the comparison rate that fits the loan you are taking.

A worked example

Take the standard basis: a $150,000 loan over 25 years at an advertised rate of 6.00% p.a., with $600 in upfront fees and a $10 monthly account keeping fee. The repayment at the headline rate is about $966 a month. Fold in the $600 upfront and the $3,000 of ongoing fees across the term, and the true cost lifts the rate to a comparison rate of about 6.15% p.a., roughly 0.15% above the advertised rate. That gap is the fees showing up as rate. On a loan advertised at the same 6.00% with no fees, the comparison rate would stay at 6.00%, which is exactly why the comparison rate is the fairer number to shop on.

Frequently asked questions