The short answer
A comparison rate combines interest and most compulsory loan fees into one annual percentage for a stated amount and term. Use it to shortlist loans, then compare your own quoted repayments and total cost. It is neither your interest rate nor a guarantee of the cheapest loan for you.
Interest rate vs comparison rate
| Figure | What it tells you | How to use it |
|---|---|---|
Interest rate | The rate applied to the outstanding loan balance, excluding fees. | Use your offered rate to estimate interest and repayments. |
Comparison rate | Interest plus most fees, expressed as one annual percentage for an example loan. | Compare loans with the same example amount and term. |
The comparison rate is not an extra interest charge: you do not pay both percentages. Nor should you subtract the interest rate from it and multiply by your loan amount to calculate fees. Fee timing, the declining balance and the example term all affect the result.
Under the Australian comparison-rate framework, the figure is intended to make loan costs easier to compare. It does not measure eligibility, customer service or repayment flexibility. ASIC explains the framework and its exclusions.
What does a comparison rate include?
| Cost or feature | What to know |
|---|---|
Interest | Included using the rate assumptions for the example. |
Compulsory setup and ongoing fees | Generally included where they apply to the example. |
Government charges | Excluded. |
Late payment, redraw or early payout | Charges triggered by particular events are generally excluded. |
Fee waivers and special offers | Read the offer and calculation assumptions; do not assume a discount is included or available to you. |
For example, Westpac's comparison-rate explanation highlights redraw, early-repayment charges and fee-waiver savings as limitations. The precise warning beside the product matters. Our personal loan fees guide shows how to check costs beyond the headline percentage.
Why the example amount and term matter
A $300 setup fee is 3% of a $10,000 loan but 1% of a $30,000 loan. That is a simple fee-to-loan illustration, not a comparison-rate calculation. It explains why a fee has a different effect when the loan size changes.
Do not assume every personal loan uses $30,000 over five years. At our review on 2 October 2026, CommBank's unsecured fixed loan used that basis, while Bank Orange's unsecured loan disclosed $10,000 over three years. These are examples of different bases, not a price ranking or endorsement.
Check the small print for amount, term, security type and relevant conditions. If the bases differ, the lower comparison rate does not establish which loan is cheaper for your situation. Request quotes for the same amount and repayment period. If the basis is missing, ask the lender before relying on it.
Example: the lower interest rate costs more
Imagine borrowing $20,000 for three years. Both hypothetical loans have fixed rates, 36 monthly repayments, no balloon and no other charges. Loan A's establishment fee is paid separately, so you receive the same $20,000 with either loan.
| Item | Loan A | Loan B |
|---|---|---|
| Interest rate | 7.50% p.a. | 8.50% p.a. |
| Establishment fee | $350 | $0 |
| Monthly fee | $12 | $0 |
| Monthly principal and interest | $622.12 | $631.35 |
| Monthly outgoing, including fee | $634.12 | $631.35 |
| Interest over three years | $2,396.48 | $2,728.63 |
| Total fees | $782 | $0 |
| Total amount paid | $23,178.48 | $22,728.63 |
Loan B costs $449.85 less, despite its higher interest rate. Loan A saves $332.15 in interest, but its $782 of fees more than cancels that saving. Loan B also has the lower monthly outgoing once the monthly fee is counted.
How we calculated this example
We used the standard monthly amortisation formula: repayment = principal × monthly rate ÷ [1 − (1 + monthly rate)−number of months]. The monthly rate is the annual rate divided by 12. Total paid = all principal-and-interest repayments + establishment fee + 36 monthly fees. Calculations use unrounded repayments; displayed amounts are rounded to cents. Real loans may calculate interest daily and round payments differently.
This is a dollar-cost example, not a calculated comparison rate. It assumes on-time payments and excludes changes in rate, additional repayments and any other fees.
Which rate goes into a repayment calculator?
Enter the interest rate, then add the applicable fees separately. Entering the comparison rate as interest and then adding fees can count costs twice. A comparison rate also cannot recreate the exact repayment schedule behind a lender's quote.
In our personal loan calculator, choose a listed loan or enter your own rate and confirmed fees. The estimate treats an upfront fee as paid separately; it does not add that fee to the amount borrowed. Unconfirmed and conditional costs may be excluded, so read the result's assumptions.
If a lender adds a setup fee to your balance, request a repayment quote on that higher balance. If it deducts the fee from the advance, check how much cash you actually receive. Either difference matters when comparing loans for the same purchase.
A five-minute loan comparison checklist
- Set your amount and term. Compare the same cash received and repayment period.
- Read the comparison-rate basis. Match its example before ranking percentages.
- Get your offered interest rate. An advertised minimum may be limited to particular applicants.
- Write down fees in dollars. Separate known setup and ongoing fees from possible early-exit or late-payment charges.
- Check two results. Can you afford the regular outgoing, and what is the total amount you would pay?
- Match the features to your plans. If you expect to repay early, ask what a payout would cost. If a car is security, understand the risk to it.
A lower monthly repayment achieved by extending the term can leave you paying more overall. A low comparison rate also does not mean a lender will approve you or offer the advertised minimum. MoneySmart's personal loan guidance explains how quoted rates, terms and features affect your decision.
Start with our personal loan comparison tool, then confirm the final terms in your lender's quote. Read how our comparisons work for coverage and estimate limitations.
Common questions
Is a comparison rate the rate I will be offered?
No. A published comparison rate describes its stated loan example. Your offered interest rate can depend on the lender’s assessment, and the fees and term of your loan may differ. Ask for your interest rate and full payment schedule before accepting the offer.
Why can the comparison rate equal the interest rate?
There may be no additional fees affecting that example, or rounding may make the figures look the same. It does not establish that every possible charge is zero. Check fees triggered by missed payments, optional services and early payout.
Does a comparison rate change when I change my loan amount?
Your borrowing costs can change, but a displayed published comparison rate still belongs to its stated example. Changing an amount in a repayment calculator does not automatically recalculate the lender’s comparison rate for your circumstances.
Should I always choose the lowest comparison rate?
No. First match the example amount and term, then check your actual offer, total cost, repayment flexibility and security requirements. A different borrowing amount or early repayment plan can change which option works out cheaper.
Sources
- ASIC: comparison rates and their exclusions
- MoneySmart: comparing personal loans
- Westpac: comparison-rate explanation
- CommBank: fixed loan calculation basis
- Bank Orange: personal loan calculation bases
General information only. Requirements, rates and fees depend on the lender, product and your circumstances. Editorial policy · How we compare · How we are paid