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From 1 July 2003, banks and credit providers are required to publish a comparison rate whenever they advertise an interest rate for a fixed-term loan. The comparison rate is a single percentage figure, calculated using a formula that includes the interest rate and most other known upfront fees and ongoing charges associated with the loan, except for government fees and charges.
The new law also states that from 1 July 2003 comparison rates schedules (lists of comparison rates for a range of loan amounts and terms) must be available in the offices of all credit providers. They must also accompany credit applications.
The comparison rate is a tool to help you understand the cost of a loan and to more easily compare loans between different credit providers.
It takes into account any establishment fees or approval charges, and any ongoing costs, like account-keeping fees. Like the interest rate, it is shown as a single figure.
Are comparison rates provided for all types of loans?
No, comparison rates only have to be provided for:
What about credit cards?
Comparison rates do not have to be provided for continuing credit products, such as credit cards. These are products that don't have to be repaid within a particular time period.
Comparison rates are calculated using a formula which takes into account:
What is not included in the comparison rate?
There are some fees and charges that are not included in the comparison rate calculation. These are:
All major financial institutions and other providers of personal credit, including:
In loan advertising
From 1 July 2003, any advertisement for a fixed term consumer credit product that shows an interest rate must also show a comparison rate.
As different loan amounts and terms produce different comparison rates, comparison rates in advertisements must be based on a standard set of amounts and terms set out in the legislation, which are listed below. The comparison rate must be based on the standard amount and terms which is most typical of the relevant loan. The credit advertisement must clearly state the amount and term on which a comparison rate is based.
Standard amounts and terms of advertising | |
($) Amount |
Term |
|
250 |
2 weeks |
|
1 000 |
6 months |
|
2 500 |
2 years |
|
10 000 |
3 yeas |
|
30 000 |
5 years |
|
150 000 |
25 years |
In comparison rate schedules
A comparison rate schedule is a list of comparison rates that apply to standard amounts and terms for a particular credit product. Comparison rate schedules can be used to compare different credit products. Below is the list of the standard amounts and terms which are used in comparison rates schedules.
Comparison rate schedules must be available at any premises of a credit provider, finance broker or linked supplier where consumer credit products are advertised or where members of the public can lodge credit applications in person.
Standard amounts and terms for comparison rate schedules | |
($) Amount |
Term |
|
250 |
2 weeks |
|
600 |
8 weeks |
|
1 000 |
6 months |
|
1 500 |
1 year |
|
2 500 |
2 years |
|
5 000 |
2 years |
|
10 000 |
3 years |
|
15 000 |
4 years |
|
20 000 |
4 years |
|
25 000 |
5 years |
|
30 000 |
5 years |
|
50 000 |
7 years |
|
70 000 |
25 years |
|
100 000 |
25 years |
|
130 000 |
25 years |
|
150 000 |
25 years |
|
200 000 |
25 years |
|
225 000 |
25 years |
|
250 000 |
25 years |
|
275 000 |
30 years |
|
300 000 |
30 years |
On the Internet
Electronic access to a relevant comparison rate schedule must be made available whenever credit products are advertised on the Internet.
Remember, if you use a comparison rate schedule, the loan amounts and terms listed may be different from the amount and term that you are seeking. Because of this, the comparison rate for your loan may be slightly different to the comparison rates shown in the schedule.
When you receive a credit application
A relevant comparison rate schedule must also accompany any credit application that is sent or given to you by a credit provider, finance broker or linked supplier. Businesses such as motor dealers and retailers often provide their customers with credit through links their businesses have established with lenders, usually finance companies. That makes them 'linked' suppliers. The comparison rate rules apply to them.
1. Loan amounts and terms
If you are checking comparison rates listed by different credit providers, make sure the rates you look at cover the same amounts and terms. Different loan amounts and terms produce different comparison rates and the comparison rate schedule does not include ALL combinations of amounts and terms. This means the comparison rate for your particular loan may not be included in the comparison rate schedule. You may wish to ask a credit provider to calculate the comparison rate for the particular amount and term you are seeking, but credit providers are not obliged to provide this information.
2. Full cost of the loan
A comparison rate may not reflect the full cost of your loan if you choose to use any additional / optional features that attract an extra fee. The comparison rate does not include government fees and charges.
3. Does the lowest comparison rate represent the best deal?
Not necessarily. The comparison rate is useful tool but the loan with the lower comparison rate does not always represent better value for money. You are advised to consider the terms and conditions of the loan, such as whether you are able to make additional repayments and whether or not you can access these additional repayments at a later date. Other factors that may make a loan more attractive, such as fee-free banking or flexible repayment schedules are NOT included in comparison rates. You should consider whether these features are important to you.
Consumers and credit providers can obtain further information on mandatory comparison rates by contacting the Office of Consumer Affairs and Fair Trading on 1300 654 499. Further information, including fact sheets and frequently asked questions can also be found on the National Consumer Credit Code website:
