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# What is the difference between comparison rate and interest rate?

## What is the difference between comparison rate and interest rate?

What is the difference between the interest rate and the comparison rate? Interest rate: reflects how much interest you will be charged per year on the balance of your loan. This affects your monthly repayments. Comparison rate: combines the interest rate plus most fees and charges that come with the loan.

What is a comparison rate example?

“It is a rate that includes both the interest rate and the fees and charges relating to a loan, combined into a single percentage figure,” she explains. For example, you may see a loan advertised as: Variable interest rate 4.25%, comparison rate 4.78% – based on loan of \$150,000 over 25 years.

### What does comparison rate mean when buying a car?

A comparison rate is the interest rate plus all fees and charges that an applicant would have to pay if they applied for and took out the financial product being advertised.

Do comparison rates matter?

The comparison rate is one of the most important numbers to understand when you compare home loan rates because it helps to explain the true cost of a loan. Understanding comparison rates is important if you are taking out a home loan. Ultimately, a comparison rate aims to explain the true cost of a loan.

#### How do comparison rates work?

The comparison rate is a percentage amount that is calculated by adding together the interest rate, plus any additional fees and charges that may apply to the loan. The total figure is then converted into a percentage rate to highlight the true cost of the loan.

Why is comparison rate lower than interest rate?

Put simply, the interest rate is what you’re charged each year on your borrowed amount but it doesn’t consider the costs, whereas the comparison rate is an overall rate that provides a more accurate representation of the true cost of the loan – it includes the interest rate and those costs, fees and other factors we’ve …

## How do you use comparison rate?

Are comparison rates reliable?

A comparison rate indicates the true cost of taking on a home loan. It gives you a more accurate representation of the interest rate as fees and charges (annual fees, valuation fees, established fees, etc.) All lenders, by law, should display a comparison rate along with their advertised rates.

### Is the comparison rate important?

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.

Should you only look at comparison rate?

Comparison rates can be useless and misleading for most borrowers. The warning states, This comparison rate is true only for the examples given and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate.

#### Are comparison rates important?

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.

How do I calculate a comparison rate?

## What do you need to know about a comparison rate?

A comparison rate is a figure derived from the amount of the loan, the length of the loan, the repayment frequency, the interest rate, and the fees and charges connected with the loan. As such, it’s purpose is to help consumers identify the true cost of a loan, says finance broker Katie Toole.

What does it mean to compare interest rates?

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:

### What makes up a comparison rate on a mortgage?

A comparison rate is a figure derived from the amount of the loan, the length of the loan, the repayment frequency, the interest rate, and the fees and charges connected with the loan.

How are loan comparison rates calculated in Australia?

Look at the comparison rate. Australian law requires lenders to provide comparison rates when comparing home loans. These are calculated to include fees and charges to give you a good idea of how this might affect the interest rate. They are usually based on a loan term of \$150,000 taken out over 25 years.