And Why Should I Pay Attention to it?

Rapid Finance on 29 May 2015

Once upon a time, the only thing you ever saw in loan advertisements from credit lenders was interest rate. Sure, there was also the small (actually, minuscule) print at the bottom of the screen or billboard, but digesting it required superhuman speed reading ability and better than 20/20 eyesight.

So all you’d see was Bank X offering 5% APR (Annual Percentage Rate) and Bank Z offering 6%. And the choice between the two was easy - lower rate means paying less over the term of the loan, right?

Not necessarily.

By law, the comparison rate must add all fees and charges (excluding early payout penalties) to the base interest rate.

The reason Bank X could offer an attractive-looking interest rate was because its loans carried a tonne of hidden fees. So while their interest rate was indeed a full percentage point lower than Bank Z’s product, Bank X’s loan would actually cost you far more over the course of the loan.

This went on for decades, with lenders hiding more and more fees, clauses and charges in their loans in order to advertise lower and lower interest rates. Eventually, the consumer complaints got out of hand and in 2003, the Consumer Credit Code was amended to make financial institutions disclose a “comparison rate” on all loan products.


The comparison rate now applies to all personal loans, car loans, credit cards, home loans and other financial products advertised in Australia to which an interest rate applies.

By law, the comparison rate must add all fees and charges (excluding early payout penalties) to the base interest rate. This allows consumers to compare financial products from different institutions like-for-like.

Should I ask what the comparison rate is when getting a loan?

You shouldn’t need to - while interest rates are still the hero of financial advertising, lenders must, by law, also advertise the comparison rate. If it’s not obvious in the lender’s literature, then always ask what the rate is.

Despite this, many consumers continue to make the mistake of comparing interest rates instead of comparison rates. And it can lead to them choosing a loan that will cost them far more in fees and interest than other similar loans.

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If, for any reason, it’s proving hard to determine the comparison rate of a loan, you can use ASIC’s MoneySmart comparison rate tool.

So always make sure you’re using comparison rates, not interest rates. However, this is still only one factor of many to consider in your research phase.

Make sure you also look at the term of the loan and of course, read all the fine print so that you know exactly what you’re committing to before you sign anything.

Need more advice on comparison rates? Call us.

With over a decade of experience, Rapid Finance has built a reputation of matching our clients with the right lender. No matter your situation, we can help you find a suitable loan for you.

Call 1300 467 274 to discuss your situation today.