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Comparison rates
What are they?
What is a comparison rate?
A comparison rate, also known as the Annual Average Percentage
Rate (AAPR) helps borrowers identify the true cost of a loan.
A comparison rate includes the interest charges, upfront costs
and ongoing fees bundled into one interest rate. Since July
1, 2003, lenders must advertise both the interest rate and a
comparison rate. For example, an advertised interest rate might
be 6.8% and the comparison rate 6.95%.
How is the comparison rate calculated?
The formula takes into consideration the amount of the loan,
the term of the loan, the frequency of repayments, upfront
costs such as establishment fees and settlement fees, and
known ongoing fees such as monthly account keeping fees. What
is not included are government duties, fees for certain services
that may or may not occur during the life of the loan (such
as redraw fees, late payment fees, etc.) and fees that are
not ascertainable at the time of the calculation. It also
does not include exit fees. |
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