Comparison Rate Calculator
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Calculator results are estimates only. A personalised review can confirm your exact numbers, fees, and any available exemptions.What a comparison rate actually is
The comparison rate exists to fix that. It folds the interest rate and most of the compulsory fees into one annual percentage, so two loans can be lined up against each other on a single number.
It is not a marketing invention. It is required by law. The rule sits in the National Credit Code, which is Schedule 1 of the National Consumer Credit Protection Act 2009. Advertise an interest rate on a regulated fixed-term consumer credit product and you must show a comparison rate alongside it, worked out by a method the regulations prescribe.
Where it does not apply
It also applies to consumer credit rather than business lending. A loan taken wholly for business purposes generally sits outside the National Credit Code, so you may not see a comparison rate on commercial or asset finance quotes at all.
The comparison rate formula
The method finds the single annual rate that makes the present value of every payment you make equal the amount you actually receive. In finance terms it is an internal rate of return on the loan’s real cash flows.
Amount received = Σ (payment in period t + fee in period t) ÷ (1 + r ÷ 12)t
The amount received is the loan minus any upfront fees. Each period’s payment is the repayment worked out at the headline rate, plus any ongoing fee. Discharge fees land in the final period. The rate r that balances the two sides is the comparison rate.
The six loan sizes written into the law
the car and personal loan benchmark
the home loan benchmark
The advertisement also has to say whether the comparison rate was worked out on a secured or an unsecured basis, because the same headline rate produces a different comparison rate depending on which.
This is why an advertised comparison rate is required to be accompanied by a warning to the effect that the rate is true only for the example given, and that different amounts and terms will produce different comparison rates. That warning is not lender caution. It is telling you something real, and the rest of this page is about what.
What goes in, and what gets left out
Counted in the comparison rate
Left out of the comparison rate
Fees that only some borrowers pay. Lenders Mortgage Insurance is the big one. On a loan above 80 per cent of the property value it can run into five figures, and none of it appears in the comparison rate.
Fees you might trigger later. Break costs, redraw fees, late payment fees.
The value of features. This is the exclusion that costs people the most. An offset account holding a real balance can save far more than the fee attached to it, and the comparison rate cannot see any of that. Two loans that look identical on the number can behave very differently in practice.
Worked example: the lower rate that costs more
Take two loans. Loan A advertises 5.89 per cent with a $395 annual package fee. Loan B advertises 6.09 per cent with no ongoing fee.
Loan A has the lower headline rate by a clear margin. On the prescribed benchmark of $150,000 over 25 years:
Loan A, 5.89 per cent plus $395 a year
comparison rate 6.25 per cent
Loan B, 6.09 per cent with no ongoing fee
comparison rate 6.09 per cent
The loan with the lower headline rate has the higher comparison rate. On the benchmark, Loan B is the cheaper loan. This is exactly the situation the comparison rate was created to expose, and here it does its job.
Now run the same two loans at a real Adelaide loan size
Loan A, 5.89 per cent plus $395 a year, works out at an effective 5.98 per cent.
Loan B, 6.09 per cent with no fee, is still 6.09 per cent.
The ranking flips. On the benchmark the law prescribes, Loan B wins. On the loan the borrower is actually taking, Loan A wins.
In dollars over the full 30 years, Loan A costs about $1,291,600 including its fees and Loan B costs about $1,307,600. Choosing on the published comparison rate alone would have cost roughly $15,900.
The benchmark is fixed at the small end. So the published comparison rate overstates the damage a flat fee does to a large loan, and understates it on a small one. The bigger your loan, the more the published number misleads in the same direction, every time.
Using the number properly
Use it to narrow the field
Then rerun it on your own numbers
Then price the parts it cannot see
If you have already narrowed the field and want the comparison run properly on your own numbers, that is what a broker does: see buying a home, refinancing or personal loans, depending on which loan you are comparing.
Commonwealth of Australia: National Consumer Credit Protection Regulations 2010, Regulation 97, for the six designated amounts and terms, and the National Credit Code, Schedule 1 of the National Consumer Credit Protection Act 2009, for the comparison rate obligation itself.
Australian Government, ASIC: National Credit Code, and ASIC Moneysmart: Choosing a home loan.
About the figures on this page. The comparison rates, repayments and totals in the worked example were calculated directly from the method described above, not taken from a third party. The rates and fees used are illustrative and are not an offer. Any real comparison rate must come from the lender.
General information only. Nothing on this page takes your objectives, financial situation or needs into account, and it is not a recommendation to choose any particular loan. Loanity is a credit representative and can provide credit assistance once we understand your circumstances.
Comparison rate questions, answered
What is a comparison rate?
A comparison rate combines a loan’s interest rate with most of its compulsory fees into a single annual percentage. The point is to let you line two loans up against each other on one number instead of trying to weigh a rate against a fee list in your head. It is required by law on advertised rates for regulated fixed-term consumer credit, and every Australian lender has to calculate it the same prescribed way.
How do I calculate a comparison rate?
You solve for it rather than add it up. The method finds the single annual rate at which the present value of every payment you make equals the amount you actually receive after upfront fees. That is an internal rate of return calculation, done by iteration, which is why a calculator does it and a pen does not. Enter your balance, term, rate and fees into the tool above and it will run the same method on your own figures rather than the prescribed benchmark.
Why is the comparison rate higher than the advertised interest rate?
Because it has fees in it and the headline rate does not. The gap between the two tells you roughly how much the loan’s fees are worth expressed as interest. A small gap means a low fee load. A large gap is worth investigating: ask which fees are producing it, and whether they apply to you at all.
Is the loan with the lower comparison rate always cheaper?
No, and this is the most common misunderstanding. The published figure is calculated on a fixed benchmark loan, not on yours. A flat annual fee is a much larger proportion of a $150,000 loan than of a $600,000 one, so the benchmark can rank two loans in the opposite order to how they would actually cost you. Work it out at your own balance and term before deciding.
Why is it based on $150,000 over 25 years when my loan is much bigger?
Because the amounts are prescribed by regulation rather than chosen by the lender. Regulation 97 of the National Consumer Credit Protection Regulations 2010 sets six designated amounts and terms, of which $150,000 over 25 years is the one used for home loans and $30,000 over 5 years is the one generally used for car and personal loans. The benchmark has not moved with property prices, which is precisely why the mandatory warning about different amounts and terms exists.
What is the comparison rate warning and why is it on every advertisement?
It is a legal requirement, not lender caution. Any advertisement showing a comparison rate must carry a warning that the rate is true only for the example given and that different amounts, terms or fees will produce a different comparison rate. It is there because the figure is calculated on a fixed benchmark, and the law requires that limitation to be disclosed rather than buried.
Do credit cards have a comparison rate?
No. The requirement applies to fixed-term credit, and a credit card is a continuing credit facility with no fixed term or fixed balance to calculate against. The same goes for overdrafts and lines of credit. To compare those you have to look at the purchase rate, the cash advance rate, the annual fee and the interest-free period separately.
Is a comparison rate the same as an APR?
They are close cousins rather than the same thing. Both roll fees into an effective annual rate. The comparison rate is the Australian version, defined by the National Credit Code and calculated on prescribed benchmark amounts. APR is used in other markets, notably the United States and United Kingdom, where the inclusions and the calculation basis differ. An APR quoted on an overseas site is not directly comparable with an Australian comparison rate.
Does the comparison rate include Lenders Mortgage Insurance?
No. LMI is excluded because it does not apply to every borrower, and the calculation is built on a standard scenario rather than an individual one. That matters, because on a loan above 80 per cent of the property value an LMI premium can run into five figures and dwarf every fee the comparison rate does include. If LMI is likely to apply to you, the comparison rate is not telling you what the loan costs.
Are comparison rates comparable between different lenders?
On the prescribed benchmark, yes. That is the whole reason the method is written into the regulations. What is not comparable is how well the benchmark reflects your situation, and lenders differ in features, policy and how they treat borrowers who need something out of the ordinary. The number is a fair like-for-like starting point, not the finish line.