What is a comparison rate?
You might think that choosing a personal loan with the lowest interest rate is the best option, however this is not always the case. With any lender, there are associated fees and charges that can impact on how much you are really paying back. This is where the comparison rate becomes an important part of the decision making process.
A car loan comparison rate is an indicative interest rate that combines the base interest rate with any foreseeable fees and charges associated with the loan into a single figure, to help you get a more comprehensive picture of what your car loan is going to cost you over the life of the loan.
While the comparison rate helps you to compare one car loan against another on the basis of it's true cost, it's also important to consider the features of a loan such as redraw and direct debit facilities, loan portability and loan repayment options (including the ability to make extra repayments) that increase the flexibility of your loan and can make a huge difference to the overall cost of a car loan.
What costs does the comparison rate include?
- Nominal interest rate: the advertised loan interest rate before any fees.
- Loan approval and any other up-front fees, including application fees
- Known ongoing fees.
What does the comparison rate exclude?
- Government and statutory fees - as these are standard regardless of lender or loan type.
- Insurance products like comprehensive car insurance premiums.
- Fees and charges that are event based and may or may not apply throughout the life of your loan. e.g. statement fees or early repayment fees.
How do you calculate the comparison rate?
The comparison rate is calculated in accordance with a standard formula, specified by the regulations, which takes into account;
- The amount borrowed
- The term of the loan
- The frequency of loan repayments
- The interest rate (see our current rates)
- Ascertainable fees and charges connected with the loan except for government charges.
Important Note on Interest Rates
The interest rate can vary depending on a range of factors, including the type of loan (i.e. whether you are getting a secured or unsecured loan), a variable or fixed interest rate, your credit history. Do your research and get personalised rates before you commit to any lender.
Car loan comparison rate example
The below is an example of how you would use a comparison rate to compare between two car loan providers. Initially, "Car loan A" might appear to offer a lower interest rate and hence a better deal, but when factoring in the fees and charges of both providers, "Car loan B" could end up costing less over the life of the loan.
|Car Loan||Interest Rate||Fees & Charges||Comparison Rate|
|Car loan A||8%||0.5%||8.5%|
|Car loan B||8.25%||0.1%||8.35%|
The ASIC MoneySmart website provides additional information about comparison rates including how to use a comparison rate and their importance. You can view this information here.
When comparing car loans, its important that each loan has the same amount, loan terms and any extras such as balloon payments otherwise you may not get a clear understanding of how much the loan may cost you.
What is a comparison rate schedule?
A comparison rate schedule details the various rates that apply to the lender's products at various loan terms and various loan amounts.
|Private Car Finance||from 5.97 %*||comparison 7.86%^|
|Dealer Car Finance||from 5.97%*||comparison 7.86%^|
|Commercial Car Finance||from 5.7%*||comparison^|
* Interest rate of 5.97% (Comparison Rate 7.86%) only applicable for new goods that have not been pre-owned, where the applicant owns or is buying their home, has an established good credit history and where a deposit of 30% or greater of the purchase price of the goods applies. Finance subject to approval, including the application of applicable lending criteria. Terms and Conditions apply. Fees and Charges are payable. Interest rates vary depending on credit scoring and our final assessment of your application. Credit provider is Automotive Financial Services – Australian credit licence 383762.
^Comparison rate for AFS Loan Contract and Mortgage is calculated on a loan amount of $30,000 secured over a term of 5 years based on monthly repayments.
WARNING: This comparison rate applies only to the example or examples given. Different amounts and terms will result in different comparison rates. Costs such as redraw fees or early repayment fees, and cost savings such as fee waivers, are not included in the comparison rate but may influence the cost of the loan.
Comparison rates can play an important role when it comes to car loans. But just what are they and why are they important?
Let's deal with the why first.
Comparison rates can provide insight into what your car loan may cost over the life of the loan. The comparison rate therefore helps you to compare one car loan against another using a set consistent formula. This enables you to compare loans on a consistent basis so that you are comparing apples to apples.
What is the comparison rate?
The comparison rate is an indicative interest rate that combines the nominal interest rate with any foreseeable fees and charges associated with the loan so you can compare what you'll be paying. The comparison rate is calculated by taking into account:
- the amount borrowed
- the term of the loan
- the frequency of repayment
- the interest rate
- and any ascertainable feed and charges connected with the loan excluding government charges.
Need more information?
Still confused about comparison rates and why they're important? Comparison rates play an important role when it comes to car loans as they allow you to compare car loan packages from various lenders.
To speak to someone about your car finance options, contact Aussie Car Loans on 1300 769 999 or send us a message.
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