A comparison rate is a calculation used to more accurately reflect the true interest rate of a loan by incorporating some of the fees and charges which come with it.
For home loans and any other finance secured against real property, comparison rates are based on a secured credit of $150,000 and a term of 25 years. Personal loans and car loans comparison rates, on the other hand, are calculated based on a secured credit of $30,000 and a term of 5 years without security unsecured (unless specified otherwise).
It's important to note that the comparison rate provided is only applicable to the examples given and may not include all fees and costs which are charged as part of your specific loan agreement. Modifying the terms, fees or size of the loan could lead to a different comparison rate.
Revolving credit products, such as overdrafts and lines of credit, do not have comparison rates calculated for them. Since these products do not have a gradual payment down process like a normal loan, the fees they accrue will have a different effect on the cost of the loan overall.
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