The quick answer
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A comparison rate combines interest and specified costs under stated assumptions. It is a useful comparison aid, not your repayment rate, a complete feature review or a guarantee of the cheapest loan for your circumstances.
Two percentages answer different questions
A loan advertisement can show an interest rate and a comparison rate. The interest rate helps calculate interest under the contract. The comparison rate combines that rate with certain fees and charges using specified assumptions. It helps expose costs that a low advertised interest rate can leave out of the headline.
Do not enter the comparison rate as the contractual interest rate and then add the same fees again. That can double count costs. Equally, comparing only the interest rate ignores charges that affect the total paid. Begin by naming the number you are using and the question you want answered: monthly payment, total cost over a chosen period, or the cost of a feature you actually intend to use.
Sources: Moneysmart: choosing a home loan and personalised comparison rates · Moneysmart: personal-loan costs and comparison
The example amount and term are part of the number
A comparison rate is calculated for an amount and period. The weighting of a fixed fee changes when those assumptions change. A $300 establishment charge is 3% of a $10,000 amount but 0.3% of $100,000 before considering timing or amortisation. This simple ratio is not a comparison-rate formula; it explains why the loan size matters.
Read the warning and assumptions beside an advertised comparison rate. Ask for information using the amount, term and repayment pattern relevant to your own proposed loan. A number calculated on a large mortgage can be less informative for a small personal loan. The general idea remains useful, but the example is not automatically a personalised quote merely because the advertisement is shown to you online.
A fictional fee comparison without pretending it is a rate
Consider two fictional three-year loans before interest. Loan A charges $200 upfront and $8 monthly. Its stated fees total $488 over 36 months. Loan B charges $450 upfront and no monthly administration fee. Its stated fees total $450. Loan B has $38 less in these particular fees, but that does not settle the overall loan cost because the interest terms may differ.
Add the actual repayment schedule, any other relevant charges and whether fees are paid upfront or financed. Financing a fee can create interest on it. Keep the cash paid at the start separate from fees added to the balance. This exercise is a dollar comparison; it does not calculate the legally prescribed comparison rate, which uses timing and cash flows rather than simply dividing all fees by the opening amount.
Not every possible cost or benefit fits the headline
A comparison-rate figure cannot describe every future event. Fees triggered by late payments, early exit or optional features may need separate investigation. A useful offset account, redraw condition or extra-payment restriction can change the practical fit without being fully captured by a single percentage.
MoneySmart's home-loan guidance recommends asking about features and conditions beyond the Key Facts Sheet, including break costs and what happens when an introductory period ends. Make those questions specific to intended behaviour. If you expect to sell the home in two years, a thirty-year illustration should not be the only cost view. If an offset will remain empty, its advertised availability is not the same as an actual interest saving.
Source: Moneysmart: choosing a home loan and personalised comparison rates
Compare the same repayment job
A longer term often reduces required monthly payments while increasing the period over which interest can accrue. Comparing a five-year quote with a three-year quote can therefore make affordability look better without reducing total cost. Hold the borrowed amount and term constant for a first comparison, then show any term change separately.
For a fictional zero-interest example, $12,000 over 24 months requires $500 monthly before fees; over 48 months it requires $250. The smaller payment is caused by twice as many payments, not by a cheaper loan. At positive interest, the distinction becomes more important. A fair worksheet shows monthly commitment, total payments, upfront cash and remaining balance at any planned exit date, so a lower repayment is not mislabelled as a saving.
Fixed, variable and introductory rates need scenarios
A comparison based on current assumptions cannot tell you where variable rates will move. A fixed rate may provide payment certainty for its fixed period while a later rate remains unknown. An introductory rate may end long before the loan does. Read the change dates and the contractual method for the rate that follows.
Instead of pretending one future path is known, test a higher-rate scenario and a shorter holding period. State the assumed rate and when it changes. A result can be useful even when it is uncertain, provided the uncertainty is visible. Avoid choosing a rosy future rate solely to make the preferred lender appear cheapest. The worksheet should help challenge an offer, not justify a decision that has already been made.
Use the loan tool for the calculation it actually performs
Elaris's loan calculator estimates principal-and-interest repayments under entered fixed-rate, monthly-payment assumptions. It does not generate a statutory comparison rate, verify eligibility, reproduce every lender's daily calculation or automatically add an entire fee schedule. Keep verified fees in a separate cost table unless an input explicitly supports them.
If you add a financed fee to the principal, label that choice and do not also count it as an upfront cash payment. If you compare an advertised comparison rate with the calculator, expect differences unless the assumptions match. A lender's personalised documents and repayment schedule provide information that a simple public tool does not have. Ask for an explanation of discrepancies rather than silently adjusting entries until the outputs agree.
A practical request to send to a lender
Ask for the amount borrowed, interest basis, repayment frequency, term, upfront fees, recurring fees, total payable under stated assumptions and any exit-related costs. For a home loan, request a Key Facts Sheet using relevant details. Also ask what changes after a fixed or introductory period and what features cost extra.
Keep the date and version of each quote. Mark unknowns visibly and avoid replacing them with zero. Then compare the offers on one consistent basis before discussing whether additional features justify additional cost. This process does not guarantee approval or identify the best loan for every borrower. It gives you an explanation of the trade-offs that remains useful when the advertisement changes or a new quote arrives.
Keep borrowed extras visible
A loan quote can include an optional product or fee in the financed amount. If you requested $15,000 of usable cash but the opening balance is $16,000, ask what the extra $1,000 covers and whether it is optional. Comparing repayments without checking the amount financed can hide the reason one quote costs more.
Use separate rows for cash received, fees paid immediately and items added to principal. Where an amount is financed, its interest effect belongs in the repayment schedule. Where it is paid upfront, it belongs in the opening cash requirement. This prevents a superficially tidy comparison from giving two offers the same borrowed amount when they deliver different amounts for the actual purchase.
FAQ: Is the comparison rate what the lender charges as interest?
No. It is a comparison measure that combines interest and specified costs under stated assumptions. The contractual interest rate and fee schedule determine the actual arrangement. Entering the comparison rate as interest and then adding included fees can double count costs.
FAQ: Does the lowest comparison rate guarantee the cheapest loan?
No. The example assumptions may differ from your amount, term and behaviour, and not every event or feature is captured. Obtain relevant personalised information and compare total dollars over the period you expect to keep the loan, including any exit assumptions.
FAQ: Can I work out a comparison rate by adding a fee percentage?
That simple addition does not reproduce the prescribed cash-flow calculation. Fees occur at different times and the balance changes as it is repaid. You can still compare explicit dollars transparently, but label that exercise as a cost worksheet rather than an official comparison rate.
FAQ: Why does a longer-term loan show a lower payment?
The balance is spread over more payments. That does not necessarily reduce total interest or overall cost. Hold the term constant for an initial comparison, then show the effect of extending it separately. Check both the monthly commitment and the total paid.
Put the next step into practice
Use your own confirmed figures and keep outstanding questions visible. Core tools are free, with no bank connection or compulsory account.
Open the Loan repayments ↗Sources and editorial notes
Sources checked 25 October 2026. Worked examples are fictional illustrations. Rules, eligibility and product terms can change; use the official source for your circumstances.
- Moneysmart: choosing a home loan and personalised comparison rates ↗
- Moneysmart: personal-loan costs and comparison ↗
- Moneysmart: mortgage-calculator assumptions ↗
General information, not an individual financial or legal assessment. AI-assisted drafting with source checks; independent professional review has not been completed. How we prepare our guides · Suggest a correction