Homeloans 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 the ascertainable fees and charges relating to a loan, reduced to a single percentage figure.

When must I be provided with a comparison rate?

Comparison rates only have to be provided for:

• credit which is wholly or mainly for personal, domestic or household purposes;
• fixed term credit - that is, credit that must be repaid within a specified time period. (A home loan with a term of 25 years, and a car loan with a term of 5 years are examples of fixed term credit. In contrast, credit cards, which do not have to repaid within a particular time period, are examples of continuing credit).

From 1 July 2003:

• a comparison rate must be included in any advertisement for fixed term consumer credit which contains an interest rate; and
• consumers must be provided with comparison rate schedules - that is, lists of comparison rates for a standard range of loan amounts and terms - by credit providers, finance brokers, and linked suppliers (suppliers of goods and services who refer customers in need of finance to particular credit providers).

How is a comparison rate calculated?

Comparison rates are calculated in accordance with a standard formula, which takes into account:

• the amount of the loan;
• the term of the loan;
• the repayment frequency;
• the interest rate; and
• the ascertainable fees and charges connected with the loan

Things to be aware of?

The comparison rate also does not take into account some factors which may make a loan more attractive, such as fee free banking, or flexible repayment arrangements. You should give careful consideration to whether these features are important to you and the effect they will have on the cost of the loan.

Not all factors are considered when working out the comparison rates, such as redraw and early repayment fees, contingency fees and break costs. Comparison rates also don't take into account the extra features of a loan that may result in long term savings, such as linked transaction accounts, direct salary crediting and nil interest credit cards.

Where can I get further information?

A list of frequently asked questions about comparison rates is available at www.creditcode.gov.au

Click Here for the comparison rate schedule