Comparison Rate

Plain-English definition. The comparison rate is a single percentage that combines a loan's interest rate with most fees and charges, so you can compare the true cost of two loans on a like-for-like basis.

How it works in Australia. The comparison rate is mandatory under the National Consumer Credit Protection Act 2009 and the National Credit Code. It must be calculated on a standard $150,000 loan over 25 years and shown alongside any advertised rate, with the prescribed comparison rate warning. It captures: the interest rate, application/establishment fees, ongoing monthly or annual fees, and valuation/settlement fees. It does not capture government fees, redraw or break costs, or fees that are conditional or optional.

Concrete example. Lender A advertises 6.09% variable with a $395 annual package fee. Lender B advertises 6.24% with no ongoing fees. The comparison rates might come out at 6.46% (A) and 6.27% (B). On a $600,000 loan, Lender B is actually cheaper despite the higher headline rate. If the loan is $1.5m, the package fee gets diluted and Lender A may flip to being cheaper — the legislated $150,000 / 25-year basis becomes misleading at scale.

Common confusion. The comparison rate's $150,000 / 25-year benchmark distorts results for typical Australian loans (now $500k+ over 30 years). It also can't capture cashback offers, redraw flexibility, or the value of an offset account. Treat it as a starting filter, not the final decision.