Shopping around for a great finance deal means sifting through tons and tons of numbers and terms you may have trouble with. Interest rates are straightforward, but what about terms like comparison rates? We break down comparison rates for you. We explain what these loan products offer and the reasons why you should look carefully at comparison interest rates.
What is a comparison interest rate?
Borrowers might be tempted to take on a low interest rate based on a smaller number. Often, the lender selling the small number might flood you with fees and charges after the fact. You may end up paying more as a consequence.
A comparison rate is a number which includes the fees and charges you’ll be paying back alongside the interest rate of the loan. These don’t usually include government charges or stamp duty. In some cases the figure does not include borrower specific fees, such as early repayment or redraw fees.
Car loan comparison rates are tabled according to a $30,000 loan to be paid off over five years. As the loan amounts and repayment period vary, so do comparison rates. These are added to the percentage based on the ratio of fee size to the principal and interest. It’s why you may find that smaller loans have higher than average interest rates. These are all written down clearly in what’s known as a comparison rate table.
The comparison rate table
People applying for car finance will be shown a comparison rate table, or schedule, so you may see each and every loan available for the finance product you are intending to purchase. This is required by law. Also, it makes deciding on the right loan much easier. You simply select your preferred product from a selection of lenders and compare them side-by-side. Some mistakenly believe every comparison rate is created equal. Like most things in life, making assumptions without checking can often lead us astray.
Why you should still be careful
Comparison rates do not generally include fees associated with optional account features. You may want a loan that won’t penalise you for paying off early. You may want a lender that provides statements for free. When taking comparison rate car loan products into consideration, you should keep these options in mind. Otherwise you might find nasty surprises trying to access such options. Still confused? Talk to a financial professional to help you understand comparison rates better.