If you’ve been researching personal loans or home loans you may have noticed something called a ‘comparison rate’. Australian lenders 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 will help you make the decision that’s right for you.
A comparison rate indicates the true cost of a loan
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. That’s why this rate is useful when you're comparing loans from different lenders.
It’s calculated using the interest rate and some additional fees and charges that may apply to the loan. It considers some of the following:
- amount of the loan
- loan term
- repayment frequency
- interest rate
- fees and charges
Why pay attention to comparison rates?
The loan with the lowest interest rate isn’t always the cheapest option. Based on interest rates alone, you may think two loans cost the same – but the comparison rate could help reveal whether one loan costs more than the other. It could also help you decide the loan most suited to your budget and long-term financial goals.
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. That’s why, when shopping around for a loan, the comparison rate gives Australian borrowers a more accurate way to understand the true loan cost.
It’s important to remember that comparison rates only apply to loans with a fixed repayment term, not lines of credit such as Flexi loans, as there are too many variables.
Things to keep in mind
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.
For more information about Westpac Home Loan comparison rates, see our full list of fixed and variable rates.
Want to learn more? Learn how to get a personal loan with Westpac.