It is a rate which includes both the interest rate and fees and charges
relating to a loan, reduced to a single percentage figure. For example,
a bank's advertised interest rate may be 7.12% and its comparison rate
What does that mean in
In the third example above the quoted interest rate is 10% which attracts $1,000 in interest per year. The fees are $100 per year. This means a total payment of interest AND fees of $1,100 per year, which is the equivalent of paying 11% interest.
Therefore, in the third example above, the interest rate is 10% while the comparison rate is 11%.
Comparison Rates Can be
Take the following example:
Assuming Interest Rates are the same, the first loan looks more attractive as it has less fees over the life of the loan. However, most loans don't last the full 30 years. In the above example, if you kept the loan for less than six years the second loan would look more attractive than the first loan.
Comparison Rates do not include early termination fees that may be included with the loan as it is assumed you will be keeping the loan for the full 30 years.
Why is a Loan Amount
always quoted with a Comparison rate?
So are Comparison Rates