> Consumer advice  > Money Matters  > Credit  > Loan comparison rates

On this page

• What credit products are covered?
• How is the comparison rate calculated?
• Which credit providers are covered?
• What are credit providers required to do?
• What is a comparison rate schedule?
• Standard amounts and terms
• Points to remember
• Advice and assistance

From the 1 July 2003 banks and other credit providers are required to give consumers a more accurate costing of the fees and charges that make up all the costs in entering a fixed loan contract for goods or services.

The new information required, including fees and charges when calculating the repayments is called the comparison rate.

What credit products are covered?

All personal credit arrangements or loans for personal or domestic purposes that:

• are fixed term, i.e. that are for a specific time

• attract an interest payment.

Credit cards and similar continuing credit products where the amount and the repayment term cannot be known in advance are excluded.

Loans taken for investment or business purposes are excluded.

How is the comparison rate calculated?

There is a standard formula that calculates:

• the interest rate for that particular credit product, such as a housing loan

• all fees and charges related to the loan that a borrower must repay under the contract (eg commencement fees for the initial contract preparation, etc) and

• the amount of the money that is being borrowed

• the term of the loan

• the repayment frequency.

The comparison rate does NOT include:

• Government fees and charges, such as stamp duty or mortgage registration fees; or
• other fees and charges such as redraw fees and early repayment fees.

That means there will be no ‘standard' comparison rate for a particular credit product because each comparison rate needs to take into account the amount and the term of the loan. Therefore a word of warning is necessary to consumers checking different credit products from different credit providers, be sure the rates considered cover the same amounts and terms.

Which credit providers are covered?

All major financial institutions and other providers of personal credit, including

• Banks
• Credit Unions
• Finance Companies
• Friendly Societies
• Building societies
• Retail stores and other businesses
• Government bodies offering credit.

What are credit providers required to do?

From 1 July 2003:

• Any advertisement for fixed term consumer credit that contains an interest rate must also provide a comparison rate.
• Credit providers, finance brokers, and suppliers linked to credit providers must provide consumers with lists of comparison rates. This is called a comparison rate schedule. It must cover a standard range of loan amounts and terms for their fixed credit products.

What is a comparison rate schedule?

A comparison rate schedule is a list of comparison rates for a range of standard loan amounts and terms for a particular credit product.

The standard amounts and terms have been set in legislation (in the Consumer Credit Code).

Comparison rate schedules must be made available at any premises of a credit provider, finance broker or linked supplier at which consumer credit products are advertised or at which members of the public can lodge credit applications in person.

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. Whenever credit products are advertised on the internet, electronic access to a relevant comparison rate schedule must also be made available.

A credit loan must clearly state the amount and the term of the loan. For example, a typical car loan may be $30,000 for 5 years, and this should be on the list if that is the type of loan the consumer is seeking. Another example of a typical consumer loan may be $150,000 for 25 years.

Standard amounts and terms

$250 for a term of 2 weeks
$600 for a term of 8 weeks
$1000 for a term of 6 months
$1500 for a term of 1 year
$2500 for a term of 2 years
$5000 for a term of 2 years
$10 000 for a term of 3 years
$15 000 for a term of 4 years
$20 000 for a term of 4 years
$25 000 for a term of 5 years
$30 000 for a term of 5 years
$50 000 for a term of 7 years
$100 000 for a term of 25 years
$130 000 for a term of 25 years
$150 000 for a term of 25 years
$200 000 for a term of 25 years
$225 000 for a term of 25 years
$250 000 for a term of 25 years
$275 000 for a term of 30 years
$300 000 for a term of 30 years

Points to remember

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.

The comparison rate does not include government fees and charges or any additional/optional services.

The comparison rate is a 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.

Advice and assistance

The Office of Consumer and Business Affairs provides consumers with advice and assistance with queries concerning loan comparison rates.

The National Consumer Credit Code website has a list of frequently asked questions and more information about your rights and responsibilities. For this information go to http://www.creditcode.gov.au

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