Often, a shiny 5.29% interest rate appears in big, bold font in a lender's advertisement. Then, right next to it, in a font so small it requires a microscope, there is a 5.80% Comparison Rate. Most borrowers glance at the first number and move on. That's exactly what the lender is hoping for.
The comparison rate is a standardised figure that includes the interest rate plus most of the fees and charges associated with the loan — things like application fees, ongoing monthly fees, and annual fees. It's calculated based on a standard loan amount ($150,000 over 25 years under the National Credit Code) and expressed as a single annual percentage rate, making it theoretically easier to compare products apples-to-apples.
The gap between the advertised rate and the comparison rate tells you a lot. A large gap — say, 0.5% or more — suggests the loan carries significant fees. A small gap means the product is relatively fee-light. Either isn't inherently good or bad, but it changes the calculation, particularly for larger loans where fees become a smaller percentage of total cost.
However, the comparison rate has significant limitations. It doesn't capture features like offset accounts, redraw facilities, or the ability to make extra repayments — features that can be worth more than a lower rate in the long run. It also doesn't reflect the fact that most people don't hold a loan for the full 25-year term.
This is why genuine loan comparison requires a more sophisticated analysis than any single number can provide. At Amber Finance, we model the true cost of a loan over your expected holding period, factor in features that match your behaviour, and present you with a clear picture — no small print required. Contact us for an honest breakdown.