What is a comparison rate?
The total sum of all the rates levied by the lender on a particular loan is the comparison rate. The rate of interest, the extra charges and the ongoing charges are taken into consideration while setting the comparison rate. This comparison rate is then valued to a single percentage. Using this percentage value the comparison of other loan products is carried out.
While advertising the comparison rate or the mortgage rate comparison calculator the lenders generally take the following into consideration.
- The Current Rate of Interest
- The Entire Ongoing Fees
- The Loan Tenure
- The Amount of the Loan
- The Type of Repayment
Why do we need a comparison rate if there is already an interest rate?
Comparison rate is very important although you know the interest rate. There are chances that the interest rate might be lower than the rest of the loan lenders, but the other charges like the ongoing fees or additional charges might be more. So when you actually start paying the installments, you would end up paying more. So when the comparison rate percentage is known it becomes easier for you to compare the various loan products.
Few such lenders started advertising with low interest rates to attract the borrowers who got duped in the long run. Thus the Government of Australia made the comparison rate a compulsory value to compare the loans and then proceed.
How to use the comparison rate calculator?
The comparison rate calculator would be programmed with the required formula for comparison. All you need to do is enter the right values against the given details.
- Loan Amount
- Loan Terms
- Introductory Rate
- Introductory Term
- Standard Or Revert Rate
- Upfront Fee
- Ongoing Fees