Comparison rates are a regulator-mandated number, calculated against a standardised borrower: $150,000 loan over 25 years for home loans, smaller for personal loans. They include the headline interest rate plus most fees, expressed as a single percentage. They are useful for ranking products of similar size and term against each other.
Where comparison rates mislead
On a $700,000 loan over 30 years, the comparison rate calculation underweights upfront fees and overweights ongoing fees compared to your actual scenario. The product ranked third by comparison rate may actually be the cheapest for your specific balance.
On personal loans the gap is bigger
“Comparison rates assume a $150,000 loan over 25 years. They're useful for ranking products at small balances, and misleading at $700,000 over 30 years.
Personal loan comparison rates are calculated on a $30,000 loan over five years. Smaller balances over shorter terms mean upfront establishment fees count for more. A "cheaper" comparison rate on a smaller, shorter loan often turns into a more expensive headline rate on the actual borrowing you want.
How to actually compare
Run the maths against your real numbers. We do this for every client: take the headline rate, the actual fees, your specific term and balance, and produce the dollar cost over the life of the loan. That number is what matters.
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