If you’ve been researching personal loans, you may have noticed something called a ‘comparison rate’. Banks are legally required to show customers a comparison rate to help them compare loans that last for a set period. Knowing exactly what the comparison rate is and how it works could help you get a better deal.
- A comparison rate indicates the true cost of a loan
- Why pay attention to comparison rates?
- Things to keep in mind
A comparison rate is designed to help you understand the overall cost of a loan based on several relevant factors, rather than just the interest rate. Each comparison rate accounts for the:
- amount of the loan
- loan term
- repayment frequency
- interest rate
- fees and charges
The loan with the lowest interest rate isn’t always the cheapest option. When researching products offered by different providers, you can use the respective comparison rates as a more accurate indication of loan cost than you would otherwise get by only comparing interest rates. This can help you decide which option might suit your needs.
For instance, a loan with a low interest rate but high fees and charges may have a higher comparison rate than a loan with a higher interest rate but low fees and charges. Note that comparison rates only apply to loans with a fixed term, not lines of credit such as flexi loans, as there are too many variables.
Remember that when you look at comparison rates, the loan amounts and terms don’t cover all possible situations – so they may not be an accurate reflection of your particular loan. The amounts that a comparison rate is based on will be in the fine print.
While comparison rates can be a good starting point, they’re not the only thing to consider when shopping around for a personal loan. It’s also important to compare the other features of the loan to see if it works for you.
If you’d like to review the comparison rates on Westpac Personal Loans, take a look at our Unsecured Personal Loan and Car Loan.
Want to learn more? Learn how to get a personal loan with Westpac.