COMPARISON RATES What is a comparison rate? A comparison rate is a tool to help consumers identify the true cost of a loan. It is a rate which includes both the interest rate and fees and charges relating to a loan, reduced to a single percentage figure. For example, a bank’s advertised interest ratemay be 5.49% and its comparison rate 6.75%. Why did the government legislate that credit providers provide comparison rates? This is best explained by an example. A bank could have an interest rate very low at say 3% but may every year to charge $10,000 in fees and charges. When the $10,000 is taken as a percentage over the term of the loan the true interest rate is much higher and its likely that it would be cheaper for the consumer to take an interest rate of 6% and not pay the $10,000 per year. This is why the government legislated that comparison rates need to be included – to give the consumer… Read More
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