Comparison rate: what it is, the $150,000 example and how to use it
A comparison rate is a single yearly percentage that combines a loan's interest rate with most of its fees and charges, so you can compare loans that price differently. For a typical home loan it is worked out on a loan of $150,000 over 25 years, one of the examples set by the National Consumer Credit Protection Regulations under the National Credit Code. Borrow more than that and the comparison rate overstates how much the fees add to your cost; borrow less and it understates it.
This page explains what the comparison rate includes and leaves out, the warning that must go with it, why it can point the wrong way on a bigger loan, and how to work out the comparison rate for your own loan amount with the calculator below. We don't quote lenders' rates.
By Better Rate Mate Editorial Team · Last reviewed
Comparison rate calculator
Enter a loan's interest rate and fees to see its comparison rate on the legislated $150,000 over 25 years, and on your own loan amount and term.
Comparison rate calculator
The rate plus fees as one figure: on the legislated $150,000 over 25 years, and on your own loan.
Comparison rate on $150,000 over 25 years
6.38%
The legislated home loan example
Comparison rate on $600,000 over 30 years
6.27%
Your loan: what the fees add to the rate
On your loan, the repayment is $3,687 a month at 6.23%, plus $10 a month in fees. Over 30 years you'd pay $727,141 in interest and $4,200 in fees. The fees add 0.15 percentage points on the $150,000 example but 0.04 on your loan, because the same dollar fees are spread over a bigger loan.
Calculated with the formula in regulation 100 of the National Consumer Credit Protection Regulations 2010: monthly principal and interest repayments, a rate that doesn't change, and fees paid when shown. Government fees and charges, and fees that depend on something that may not happen (such as break costs or redraw fees), are left out, as the law allows. The lender's key facts sheet shows the comparison rate for your loan.
Mortgage repayment calculator: repayments and total interest at any rate
What is a comparison rate?
Part 10 of the National Credit Code says its object is to help consumers identify the true cost of credit. To do that, a credit advertisement that states an annual percentage rate (the interest rate) must also show the comparison rate, no less prominently, along with the amount and term it was worked out on (sections 160 to 164). A document other than an advertisement that shows a comparison rate has to follow the same rules (section 165).
The calculation is set by regulation 100 of the National Consumer Credit Protection Regulations 2010. In plain terms, the comparison rate is the interest rate that would make the amount you borrow equal to everything you pay back: every repayment plus every credit fee or charge that can be worked out in advance. It is a nominal yearly rate, stated to at least two decimal places.
Why $150,000 over 25 years? The legislated examples
Regulation 97 sets six 'designated amounts and terms'. An advertisement uses whichever one most closely represents the typical amount and term the lender first provides for that product (section 161), and can show more than one. For home loans the closest is usually $150,000 over 25 years, which is the example you'll see next to advertised home loan rates. For a car or personal loan of around $30,000, the closest example is $30,000 over 5 years.
For the $10,000 and $30,000 examples, the advertisement must also say whether the comparison rate is for a secured or an unsecured loan (section 162 and regulation 98).
| Amount of credit | Term |
|---|---|
| $250 | 2 weeks |
| $1,000 | 6 months |
| $2,500 | 2 years |
| $10,000 | 3 years |
| $30,000 | 5 years |
| $150,000 | 25 years |
What the comparison rate includes and leaves out
The comparison rate includes the interest rate and the credit fees and charges that are known when it is shown, such as application, establishment, valuation and settlement fees and ongoing monthly or annual fees. It leaves out:
- Government fees, charges and duty, such as stamp duty and titles office registration fees (regulation 100)
- Fees that depend on something that may or may not happen, which the Code says need not be included (section 166): for example redraw fees, early repayment or break costs and late payment fees
- Cost savings such as fee waivers, and the value of features such as an offset account
- Credit cards and other continuing credit, such as lines of credit: Part 10 doesn't apply to them (section 158), so card advertisements don't carry a comparison rate
The comparison rate warning
A comparison rate in an advertisement must come with a warning set by regulation 99. The short version reads: 'WARNING: 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.'
The long version adds that costs such as redraw fees or early repayment fees, and cost savings such as fee waivers, aren't included in the comparison rate but may influence the cost of the loan. Both point the same way: the comparison rate is accurate only for the example it was worked out on.
Why the comparison rate can mislead on a bigger loan
Fees are fixed dollar amounts, so they weigh far more on a $150,000 loan than on a $600,000 one. The same $395 a year adds much more to the comparison rate on the legislated example than it adds to the real cost of a typical loan today. The table shows the effect.
It can change which loan looks cheaper. Loan B below charges 6.03% with a $395 yearly fee; Loan A charges 6.23% with no fees. On the $150,000 example Loan B's comparison rate is 6.39% against Loan A's 6.23%, so it looks dearer. On a $600,000 loan over 30 years it is 6.12% against 6.23%: Loan B is the cheaper loan.
| Fees | $150,000 over 25 years (the legislated example) | $600,000 over 30 years |
|---|---|---|
| No fees | 6.23% | 6.23% |
| $600 of upfront fees | 6.27% | 6.24% |
| $10 a month account fee | 6.34% | 6.26% |
| $395 a year package fee | 6.58% | 6.31% |
| $600 upfront and $395 a year | 6.63% | 6.32% |
Two loans whose order flips with the loan size
The rule of thumb: if you borrow much more than $150,000, the interest rate matters more than the comparison rate suggests, and fees matter less. Work out the comparison rate for your own amount and term, as the calculator above does, or ask the lender for its Key Facts Sheet.
| Loan | Interest rate | Fees | Comparison rate on $150,000 over 25 years | Comparison rate on $600,000 over 30 years |
|---|---|---|---|---|
| Loan A | 6.23% | None | 6.23% | 6.23% |
| Loan B | 6.03% | $395 a year | 6.39% | 6.12% |
Comparison rate vs interest rate: which should you use?
The interest rate is what the lender charges interest at, and your repayments are calculated from it. You never pay the comparison rate: it is a yardstick for comparing cost, made by folding the fees into the rate.
Use both. Compare loans of the same type (variable with variable, the same fixed term) on the comparison rate for your loan amount, not only the advertised $150,000 figure. A Key Facts Sheet for a standard home loan, in the form set by Schedule 5 of the regulations, shows a personalised comparison rate for the amount and term you enter, which is the figure to compare. Then check what the comparison rate can't show: whether you'd use an offset or redraw, the fees for things you might do (switching, breaking a fixed rate, discharging), and what happens to the rate after any fixed or introductory period.
How to compare home loans with comparison rates
A short checklist:
- Get the comparison rate for your loan amount and term: the calculator above, or the lender's Key Facts Sheet
- Compare like with like: the same loan type, repayment type (principal and interest or interest-only) and LVR band
- List the fees left out, such as redraw, break costs and discharge, and the ones you expect to pay
- Value features yourself: an offset can save more than a small rate difference, as our offset calculator shows
- Run the rate through the mortgage repayment calculator to see the monthly cost
What to watch for
- A comparison rate quoted on $150,000 over 25 years when you're borrowing several times that: fees are overstated and the rate understated.
- Fees left out because they depend on what you do, such as break costs on a fixed loan or redraw fees.
- Introductory or fixed rates: ask what rate applies afterwards and when.
- Package fees that are worth paying only if you use the offset, card or discounts they include.
Common questions
What is a comparison rate?
A single yearly rate that combines a loan's interest rate with the fees and charges that can be worked out in advance, so loans with different fees can be compared. It is calculated the way regulation 100 of the National Consumer Credit Protection Regulations 2010 sets out, for an amount and term stated with it.
Why is the comparison rate higher than the interest rate?
Because it adds the loan's fees to the rate. A loan with no fees has a comparison rate equal to its interest rate; the more fees, and the smaller the loan, the bigger the gap.
Do I pay the comparison rate?
No. Interest is charged at the interest rate, and fees are charged as dollar amounts. The comparison rate only expresses those costs together as one rate for comparison.
Why is the comparison rate based on $150,000 over 25 years?
Regulation 97 sets the amounts and terms comparison rates are calculated on, and $150,000 over 25 years is the one closest to a typical home loan. The Code requires an advertisement to use the designated example that most closely represents the lender's typical loan.
Is a lower comparison rate always better?
Not for every borrower. On a loan much bigger than $150,000, a loan with a lower interest rate and a yearly fee can cost less than one with no fees, even if its advertised comparison rate is higher. Work out the comparison rate for your own amount.
What is the difference between a comparison rate and an interest rate on a loan?
The interest rate sets your repayments. The comparison rate adds the known fees to show the loan's total cost as one rate, for the example amount and term stated with it.
Do credit cards have a comparison rate?
No. Part 10 of the National Credit Code doesn't apply to continuing credit contracts such as credit cards and lines of credit, so compare cards on the purchase rate, annual fee and interest-free days instead.
What does the comparison rate warning mean?
That the comparison rate is accurate only for the example amount and term shown, and may not include every fee. A different amount, term or set of fees gives a different comparison rate.
About rates on this page
We don't quote lenders' interest rates: they change daily and with every RBA decision, and we don't have a live rate feed. The averages we quote are the RBA's published figures for the month shown. Always get the lender's key facts sheet, which shows the rate and comparison rate for your loan amount.
