I often see banks and car loan providers advertising their comparison rates. What exactly is a comparison rate and is it the best way to compare mortgages and loans?

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Tom. Hi. Thank you for your question.
The comparison rate simply prices in the standard fees charged over the life of the Loan and converts this back to an overall interest rate. The concept allows you to compare all lenders equally.
It is s legal requirement to quote comparison rates on a 25 year loan term. If you do not intend to stay in the loan for that period, then it may not be the most important thing to look at.
Give me a call if you would like more info
Regards
Ken Olds
1300 ASK KEN

Hi Tom.
The problem with the Comparison Rate is that it compares the loan of $150,000 over 25 years and builds the cost in of application and discharge and any other ongoing fees. It does not include one-off charges such as over limit fees et cetera.

I actually think it's a little misleading because these fixed costs will be a lot less in relative terms to a loan of $600,000 compared to a loan of $150,000. So, I would take note of it but depending on your loan size it may have negligible difference to your loan repayments each month.

Unfortunately no one has come up with a better method of a level playing field for calculating or comparing loans across the market.
Cheers
Richard

Hi Tom,
Yes it's always best to look at the comparison rate because this rate takes into account fees and charges over a specified time. Each lender works this out differently. Have a look at the fine print to see what loan amount and over what time they are calculating this. Hope this helps.

Comparing costs for a $150,000 loan over 25 years - not very informative. Best option is to contact a broker and get s comparison of loans suitable and available to you.

Ultimately the thing you should care about isnt rate and it isnt comparison rate but (assuming you have a loan that has all the features you need) you should care about total cost.

Debt shouldnt cost you any more than it needs to so you should focus (once your needs & objectives are met) on

a) who will approve you for the amount you need to borrow for the person you are for the property you wish to buy
b) for the least amount of total cost

But total cost over what timeframe is the question? 1 month? 30 years? ... people tend to think 3 - 5 years ahead in our observation. So ensure whoever you talk to (or whatever platform you use if you use a digital broker) can provide you with an estimate of total cost over the timeframe that suits your horizon. I say estimate as if you pay it down faster, the variable rate changes etc.. the numbers in reality will of course change