What a comparison rate actually tells you (and what it doesn’t)

Moneysmart defines a comparison rate as “a rate that helps you work out the true cost of a loan” — one that “includes the interest rate, and most fees and charges relating to a loan, reduced to a single percentage figure”. Two loans with the same advertised interest rate can carry very different fees; the comparison rate exists so those fees cannot hide.

It is a creature of law, not marketing. Part 10 of the National Credit Code (Schedule 1 to the National Consumer Credit Protection Act 2009) exists “to assist consumers to identify the true cost of credit offered by credit providers”, and section 160 provides that a credit advertisement must contain the relevant comparison rate if it contains an annual percentage rate. Publishing a credit advertisement that does not comply with these advertising rules is an offence under the Code (100 penalty units). In general, then, wherever you see an advertised interest rate on a home loan, personal loan or car loan, the comparison rate must be there too.

The Code also polices how it appears. Under section 164 the comparison rate must be identified as a comparison rate and must be no less prominent than any interest rate or repayment amount in the advertisement — and on television, the internet or other electronic displays, an on-screen interest rate means an on-screen comparison rate. ASIC’s Regulatory Guide 234 (June 2026) treats a comparison rate as impermissibly less prominent where it is smaller or faded, where you must click or hover to reveal it, or where it sits away from the interest rate. Section 165 extends the same rules to comparison rates in other documents — lender websites and rate sheets included.

Regulation 100 of the NCCP Regulations 2010 prescribes the calculation: a nominal rate per annum produced by a present-value formula that takes in the loan repayments plus each credit fee or charge payable by the borrower — other than a government fee, charge or duty — that is ascertainable when the rate is disclosed. The result must be correct to at least the nearest one hundredth of one per cent, and must be accompanied by a statement of the amount of credit and the term it is based on.

That last requirement matters, because the rate is never calculated on your loan. Under section 161 of the Code, the advertised comparison rate is calculated for whichever regulation-prescribed “designated amount and term” most closely represents the typical credit for the product being advertised.

For home-loan-scale products the closest designated example is $150,000 over 25 years — which is why home loan advertisements across the market quote a comparison rate on that same, now rather dated-looking, loan. Section 162 requires the advertisement to clearly state the product name and the amount and term each comparison rate applies to; rates calculated on the $10,000 and $30,000 examples must also say whether the loan is secured or unsecured.

• Government fees, charges and duties. Excluded from the calculation by regulation 100 — so costs such as stamp duty and registration fees never appear in the number.
• Event-dependent costs. Under section 166(2) of the Code, fees are not ascertainable — and need not be included — if their imposition or amount depends on events that may or may not happen. Early repayment fees, redraw fees and late payment fees sit outside the comparison rate for this reason, as does a fixed-rate loan’s potential break cost — one of the trade-offs weighed in our fixed versus variable decision framework.
• Fee waivers, features and flexibility. ASIC notes that the comparison rate “only allows comparison based on cost, and will not include other factors that may make a loan more attractive, such as access to fee-free accounts or flexible repayment arrangements”. Cost savings such as fee waivers are left out too — the legislated warning under regulation 99 of the NCCP Regulations 2010 says so in terms. Offset accounts, redraw and split facilities are invisible to it; see loan features explained.

The standardised example is the comparison rate’s greatest strength and its main limit. Fixed-dollar fees weigh heavily on a $150,000 loan but proportionally less on a larger one, so a product that looks expensive on the designated example may sit differently on your figures — and vice versa. A different loan amount or term produces a different comparison rate; the legislated warning says precisely that.

Your loan also carries costs the standardised example cannot anticipate: government charges (excluded by law), event-dependent fees, and borrower-specific costs such as lenders mortgage insurance where it applies to your loan. Fee structures, rates and product features vary by lender and by product, so two loans with identical comparison rates can behave quite differently in practice.

One further quirk: under section 167 of the Code, an advertisement does not cease to comply merely because an interest rate or fee changes, for the 7 days after the change takes effect — one reason a freshly changed rate may briefly differ from what is advertised.

This is where credit assistance earns its keep: a broker can run the comparison on your actual loan size, term and structure across a panel of lenders, rather than on the legislated example. Our lending work is provided through a credit representative arrangement — our Credit Guide sets out who we act for and how the service works. In most residential lending scenarios, the lender pays broker commission. We explain remuneration in our Credit Guide.