The entire world of finance can be more than a little hard to wrap your little head around. When on the market for a vehicle loan, you will hear “interest rate”, “establishment fees”, “gap insurance” and many, many more puzzling terms. The confusion for the average Joe would undoubtedly build up, so we are here to help. This is your go-to guide to explaining the loan comparison rate.
The Basics: What Is A Comparison Rate?
A comparison rate is a way to help consumers looking to buy to identify the true cost of a potential loan. The rate will lump the interest rate plus fees and charges into one single percentage figure. It is the best way for a borrower to compare overall rates against different institutions so they can find the best loan for their situation.
From 1 July 2003, the Australian Government made it compulsory to display a comparison rate for any advertisement of a credit rate, however, what is advertised may not always be the rate offered to a customer. This will only be set in stone once you are approved and sign on the dotted line for a loan of any kind.
What Does A Comparison Rate Include?
The rate will be a variety of amounts made up of:
- The amount of the loan
- The term of the loan
- The repayment frequency
- The interest rate
- The fees and charges connected with the loan (excluding government charges).
What Does The Comparison Rate Exclude?
In most cases, a car’s stamp duty will be included in the final cost of the vehicle, so this relates to the finance of the vehicle amount rather than costs included in the comparison rate. Exclusions of the comparison rate include:
- Government and statutory fees (these are standard regardless of the lender or loan type)
- Insurance products e.g. comprehensive car insurance
- Fees and charges that are subject to events e.g. statement fees or early repayment fees.
When shopping around for a motor vehicle loan, it is always best to take note of the comparison rates as most financial institutions advertised interest rate does not take into account additional costs of the loan such as establishment fees, approval fees, and any ongoing or upfront fees.
A loan calculator on a financial institution’s website is also a handy tool for when you are chasing an estimated quote prior to filling out an enquiry form.
Have you checked out our handy loan calculators?
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