What Is a Comparison Rate? The Number That Shows a Loan's Real Cost

Two lenders, two car loans, the same $30,000. One advertises 7.00% and the other 7.50%. The cheaper one looks obvious, right up until you notice the second, slightly smaller number printed beside each rate. That number is the comparison rate, and it is usually the one telling you the truth.

What a comparison rate actually is

A comparison rate is the interest rate plus most of the fees and charges on a loan, rolled into a single percentage. ASIC's MoneySmart defines it as "a rate that helps you work out the true cost of a loan. It includes the interest rate, and most fees and charges relating to a loan, reduced to a single percentage figure."

The interest rate on its own only tells you what the lender charges for the money. It says nothing about the $400 establishment fee, or the $10 a month you pay simply to keep the account open. The comparison rate folds those in, so you can put two loans side by side and see which one genuinely costs less.

This is not a marketing invention. Part 10 of the National Credit Code requires credit providers to include a comparison rate when they advertise fixed-term credit that is mainly for personal, domestic or household purposes. If an advertisement shows an interest rate, it must show a comparison rate as well, under section 160 of the Code. ASIC enforces it.

Why the two numbers are almost never the same

What gets counted

Interest, plus the fees you cannot avoid: establishment or application fees, and ongoing monthly or annual account fees. Anything known at the outset that applies to every borrower on that loan goes into the calculation.

What gets left out

Government fees and charges are excluded. So are costs the lender cannot know in advance, such as an early repayment fee, a late payment fee, or a redraw fee, because those depend on what you do during the loan rather than on the loan itself.

That gap matters. A loan can carry a tidy comparison rate and still cost you later if you pay it out early or miss a repayment. The comparison rate measures the cost of running the loan exactly as planned, not the cost of changing your mind halfway through.

A worked example

Say two lenders both offer a $30,000 car loan over five years. The figures below are an illustration to show how the maths works, not a quote from any lender.

Loan B advertises the lower interest rate. It also costs roughly $574 more over the five years. The comparison rate is the only figure in that table that would have warned you before you signed.

The catch worth knowing

A comparison rate is calculated for one specific loan amount over one specific term. Change either and the number moves. Fixed dollar fees bite far harder on small loans: that same $400 establishment fee adds about 0.56 percentage points to a $30,000 loan over five years, but about 1.73 percentage points to a $10,000 loan over the same term. Three times the damage, same fee.

Which is why the law requires a warning beside every advertised comparison rate, stating that it is accurate only for the example given. That comes from section 163 of the National Credit Code and regulation 99 of the National Credit Regulations. ASIC's advertising guide (Regulatory Guide 234, June 2026) also makes clear the comparison rate must not be less prominent than the interest rate. If you have to hover over something, click through, or squint to find it, the advertiser has a problem.

ASIC's guide includes a real case of the calculation going wrong: a bank advertised a discounted home loan rate that was only available inside a package carrying an annual fee, then left that fee out of the comparison rate. The published figure was wrong, and ASIC treated it as likely to mislead borrowers about the true cost.

How to use it when you are comparing loans

Check the example the rate is built on. If the advertised comparison rate assumes $30,000 over five years and you want $12,000 over three, the advertised figure is not your figure. Ask the lender for a comparison rate on your amount and your term.

Ask what sits outside the calculation. Early repayment fees, late fees and redraw fees are excluded by design, and they are the ones that catch people who pay a loan off ahead of schedule.

Compare like with like. A secured loan and an unsecured loan will show very different comparison rates, because the risk to the lender is different. Secured means the loan is backed by an asset, usually the car itself, which the lender can take back if you stop paying. Unsecured means it is not, so the rate is generally higher. Our guide to how car loans work in Australia walks through both.

What to do next

Before your next application, do three things. Write down the loan amount and term you actually want, not the lender's example. Ask each lender for the comparison rate on those numbers, in writing. Then ask for the full fee schedule, including the fees the comparison rate leaves out.

If a lender will not give you a comparison rate on your own figures, that tells you something useful too. And if your credit history is less than perfect, the fee structure often matters more than the headline rate, which our guide on getting a personal loan with average credit covers in more detail.

If you want to see comparison rates side by side without filling in five separate applications, Emu Money can compare options across 50+ lenders. Subject to lender approval, terms and conditions apply. Compare car loan options.