Loan shopping can feel effortless until the fine print shows up. One rate looks low; another looks higher. Then a “comparison rate” appears, and things get confusing fast. Many are left shaking their heads, asking: What is a comparison rate?
Understanding what comparison rates are will help you see the real cost of a personal loan, not just the headline rate. It also makes it easier to spot genuine value, especially when fees quietly inflate repayments over time for everyday Australian borrowers.
But worry not! This quick guide has all you need to know.
At a glance: interest rate vs comparison rate
| Aspect | Interest rate | Comparison rate |
| What it is | The percentage charged on the borrowed amount (the “headline” rate). | A single rate that combines the interest rate plus most lender fees and charges into one figure, so you can compare the likely total cost more fairly. |
| What it includes | Interest only (not fees). | Interest + standard lender fees/charges that can be known upfront (e.g. application/establishment and ongoing account fees, where applicable). |
| What it typically excludes | N/A (it is just interest). | Not every possible cost. It generally excludes government charges and fees that are contingent or not ascertainable at the time (e.g. some early payout/break costs, late payment fees, optional features). |
| Why it exists | Helps you understand the base price of credit. | Helps prevent “low rate, high fee” offers by reflecting fees in a single comparable number. |
| Best use | Assessing the base rate and how the lender prices risk. | Comparing two loans with the same loan amount, term and structure to see which is likely cheaper overall. |
| Main limitation | Can look cheaper than it really is if fees are material. | It’s an estimate based on assumptions and may not match your exact loan. It’s a comparison tool, not a quote. |
| When it’s most helpful | When you already know the fees are low or fixed, and you’re comparing like-for-like on features. | When lenders have different fee structures, and you want the quickest “true cost” sanity check. |
| Legal / disclosure context (AU) | Often shown in ads and product pages. | Must be included when advertising fixed-term credit for personal/domestic/household purposes under the National Credit Code rules. |
| Practical takeaway | A lower interest rate does not automatically mean a cheaper loan. | If two loans have similar features, the lower comparison rate is usually the better value indicator. |
What is the comparison rate?
The comparison rate helps you to understand the real cost of a personal loan, whereas the interest rate is literally just the finance charged.
The comparison rate includes other fees attached to your loan. These include the establishment fee and any ongoing administration and management fees.
Why you must pay more attention to the comparison rate
Simply stated, the interest rate doesn’t account for the above-mentioned fees. As such, loans with lower interest rates can have high fees. As a result, the comparison rate for these loans can be higher. You subsequently end up making higher repayments and paying back a larger amount overall than if you’d opted for the loan with the lowest comparison rate!
In contrast, a loan with a higher initial interest rate may have lower fees and a lower comparison rate.
It’s easy to see why automatically opting for a lower interest rate can be a bad idea!
Why was the comparison rate created?
Comparison rates were created to boost transparency in the lending market and protect borrowers from misleading interest rate advertising.
In Australia, the National Credit Code legally requires lenders to display a comparison rate alongside any advertised interest rate for fixed-term credit products such as personal and home loans. This regulation was introduced as part of broader consumer credit reforms to help people see beyond low headline rates and understand the true cost of borrowing.
Because the comparison rate combines the interest rate with most upfront and ongoing fees and charges into a single figure, consumers get a more realistic view of what they’ll pay over the life of the loan. Prior to this rule, lenders could entice borrowers with low interest rates while hiding costs in fees, making genuine cost comparisons difficult.
While it’s a useful tool, comparison rates are regulated estimates based on a standard loan amount and term defined by law, and might not reflect individual borrowing circumstances. They’re designed to guide comparisons, not replace personalised quotes or thorough cost assessments.
How do I find out the comparison rate?
It is a regulatory requirement for all lenders to display what the comparison rates are for their loans alongside the interest rate in all advertising and communications. Both must be as prominent as each other.
Therefore, it’s easy to find out the comparison rate for a personal loan; you just need to understand what it is telling you!
At NOW Finance, because all our loans are fee-free, the interest rate and comparison rate are always the same!
With a NOW Finance personal loan, you’ll pay no application, no monthly and no early termination fees.
Even if you find a personal loan offering a lower interest rate than NOW Finance, look at what the comparison rate is once all fees are considered. With no fees on your NOW Finance personal loan, our comparison rate may still be lower, and your loan cheaper as a result.
Consider the scenario below:
| NOW Finance | Other Lenders | |
| Finance Required | $30,990 | $30,990 |
| Establishment Fee | $0 | $1,000 |
| Monthly Fee | $0 | $0 |
| Interest Rate | 10.95% p.a. | 9.95% p.a. |
| Comparison Rate | 10.95% p.a | 10.98% p.a. |
| Loan Term | 84 months | 84 months |
| Repayment Amount | $243.91 fortnightly repayments | $244.15 fortnightly repayments |
This example shows why comparison rates matter more than headline rates. While the other lender advertises a lower interest rate, the added establishment fee increases the overall cost of the loan. Once fees are factored in, the comparison rate is higher, and so are the repayments.
With NOW Finance, the absence of fees means the interest rate tells the full story. The result is a lower true cost and smaller repayments, even when the advertised rate appears higher at first glance.
Focus on the comparison rate to get the cheapest personal loan solution
By prioritising the comparison rate vs the interest rate when shopping around for a personal loan, you give yourself the best chance to find the best value loan for your needs.
What’s more, with NOW Finance, you can get your guaranteed comparison rate before you apply without affecting your credit score. Get started by checking your personalised rate and finding out whether you’re eligible; discover the potential savings you can make with a no-fees loan!
Please feel free to reach out to us should you need more guidance.
