Borrowers seeking out financial products can easily be confused by the presence of a comparison rate and Interest Rate when visiting lenders’ websites or reviewing information. Which one should borrowers look at?
While lenders will tend to primarily advertise using the base interest rate, as this is the lower figure, borrowers should seek out the comparison rate, as this is the more accurate reflection of interest that will be applied to a loan. The comparison rate will include additional fees and charges applied by the lender, so it is possible that a lender advertising a lower base interest rate could have a higher comparison rate, therefore actually be offering a more expensive deal to borrowers.
Although the base interest rate may be more attractive, borrowers should ensure they use the comparison rate as the main comparison point when looking to compare the overall cost of loans and financial products in general.