Have you ever wondered what a comparison rate is?
Announcement posted by Laboratories Credit Union 04 May 2015
You may have noticed that on most loan advertisements where an interest rate is quoted there is a comparison rate next to it. Most people focus on only the interest rate and ignore the comparison rate when applying for a loan. The Australian Government has made it mandatory to display a comparison rate for any loan advertisement and for good reason. Here is why it is important for you to understand the difference between the two.
A comparison rate is the ‘true cost’ of the loan. This rate includes both the interest rate and the fees and charges that apply with the loan. The interest rate alone does not take into account the fees and charges of the loan like the comparison rate. That is why it is important to consider the comparison rate when applying for a loan.
What is included in the comparison rate?
- Loan Amount
- Fees and Charges of the loan
- Term of the loan
- Interest rate of the loan
- Loan repayment frequency
What else to consider?
While the comparison rate is a useful tool to compare loans it is important to also consider the different features of the loan. A loan that has a low comparison rate may not have features that will save you more money when it all adds up. LCU offers benefits such as 100% offset, redraws, special discounts and assistance on our Barefoot Loans. Another financial institution might not offer these features that could possibly save you money in the long run.
Features that could make a difference to the loan
- Offset Account
- Free Redraw
- Extra Repayment options
- Application fees
- Ongoing Fees
- Annual Fees
- Discounts and Assistance
In conclusion we recommend that you consider not only the interest rate but also the comparison rate when choosing a loan. Remember that choosing a loan will be different for everyone. A lower interest rate may benefit one person while another may save more considering the features of the loan. If you wish to enquire about a loan please give us a call to talk to our loan advisers.
If you want to compare loans check out the LCU Loan Comparison Rate Calculator.