What is a comparison rate?
A comparison rate is a single percentage that blends a loan's interest rate with its known upfront and ongoing fees, calculated by law on a standard $150,000 loan over 25 years so that every lender's figure is built the same way. It ranks loans by rate-plus-fees; it does not tell you what you will pay, and it leaves out the features that matter most to many borrowers. This guide covers what it includes, what it leaves out, how to read the common numbers, and when it misleads.
- One figure combining the interest rate and the loan’s known fees, calculated on $150,000 over 25 years with monthly repayments under a formula every lender must use
- Includes application, settlement, ongoing account-keeping and discharge fees (NAB); excludes government charges, optional-feature fees such as offset and redraw, event fees such as early repayment, and fee waivers (NAB, CommBank)
- A comparison rate well above the headline rate means high fees or a high revert rate after a fixed or honeymoon period
- It is a ranking tool for the example loan, not your rate: your repayments use the interest rate, and your loan size changes the weight of the fees
- Business loans have no comparison rate; the National Credit Code that requires it covers personal lending only
WARNING: This comparison rate is true only for the example given and may not include all fees and charges. Different terms, fees, or other loan amounts might result in a different comparison rate. Comparison rates are calculated on a secured loan of $150,000 over 25 years for home loans, a loan of $30,000 over 5 years for car and personal loans, and $50,000 over 5 years for equipment finance, unless the lender states another basis.
What is a comparison rate?
NAB's definition is the standard one: a comparison rate includes the interest rate as well as certain fees and charges relating to your home loan or personal loan, and it allows you to compare different loans as a guide to how the cost of one might compare to another. CommBank publishes the mechanics: the formula is regulated by the Consumer Credit Code, every Australian financial institution and mortgage provider uses the same formula, and the rate is calculated on a $150,000 secured loan over a 25-year term. Bank Australia, ING and ANZ publish the same $150,000, 25-year basis under their advertised rates. Because everyone uses the same example, the figures line up across lenders; because it is an example, none of them is your loan.
What does it include, and what does it leave out?
| Included (NAB, CommBank) | Excluded (NAB, CommBank) |
|---|---|
| The interest rate, including the revert rate after a fixed or introductory period | Government fees and charges: stamp duty, mortgage registration, land tax |
| Application fees | Fees for optional features such as an offset or redraw facility |
| Settlement fees charged by the lender | Fees for events that may or may not happen: early repayment, redraw |
| Ongoing account-keeping fees | Fees not available at the time the rate is provided |
| Discharge or exit fees | Cost savings such as fee waivers and the availability of offset arrangements |
The exclusions are where the figure fails borrowers who use their loan's features. A borrower with $50,000 in an offset account saves far more than the offset fee costs, and the comparison rate reflects neither. A cashback of $3,000 is a real reduction in the first year's cost and does not appear. Two loans with identical comparison rates can cost thousands apart once you use them.
How to read the common numbers
Comparison rate close to the interest rate. Low fees, no revert; the loan is what it says. Comparison rate well above the interest rate. Either meaningful upfront and ongoing fees, or a fixed or honeymoon rate that reverts to a higher variable rate. On a honeymoon loan this is the number that exposes the revert rate. Comparison rate below the interest rate. A fixed rate reverting to a lower variable rate on the example; ING publishes different comparison rates for its fixed green loan depending on which variable rate follows. 0% comparison rate. Promotional retail or car finance with no interest and no fees on the example; on a home loan it does not exist. NAB's advice covers all four: a low advertised rate may not be the best option if the comparison rate is significantly higher, and the figure should be considered a guide only.
Why the $150,000 example matters for your loan
A flat fee weighs more on a small loan than a large one. A $395 annual package fee is about 0.26 percentage points on $150,000 but about 0.07 points on $600,000, so a package loan looks worse on the comparison rate than it is for a large borrower and better than it is for a small one. Some lenders now publish comparison rates on larger examples as well; CommBank and the others above still use $150,000. The fix is to take the two or three loans the comparison rate shortlists and run them through the repayment calculator on your own amount and term, adding the fees you will actually pay and the features you will actually use.
When the comparison rate misleads
On introductory loans, where the blended figure hides both how good the first year is and how bad the revert is. On package loans for large borrowers, where the annual fee is overweighted. On loans with offset, where the excluded feature is the point of the loan. On investment loans, where after-tax cost matters more than any rate. And on business loans, where it does not exist at all: the compare business loans guide covers how to compare a factor rate with an interest rate when there is no regulated figure to lean on. A broker compares on total cost over your holding period, which is the number the comparison rate approximates. Your Finance Guide refers you to one licensed broker partner for that comparison; we do not lend or assess applications ourselves.
Reading a rate
The features and offers the comparison rate leaves out.
Comparison rate FAQs
What does a 2.9% comparison rate mean?
What does a 0% comparison rate mean?
How can I compare interest rates in Australia?
Is the comparison rate the rate I actually pay?
Why is the comparison rate sometimes lower than the interest rate?
Does the comparison rate include offset and redraw fees?
Do business loans have comparison rates?
Compare on total cost, not one number
Tell us your loan size, term and how you use your loan, and we refer you to one licensed broker partner who compares real quotes on what you will actually pay. Free for borrowers, no obligation.