Interest rates vs. Comparison rates:
What's the difference?
Last updated: 06 October 2025 | Estimated read time: 3 Minutes
When comparing home loans, it’s easy to focus on the interest rate, but that’s only part of the story. To understand the true cost of a loan, you’ll also want to look at the comparison rate.
A comparison rate gives you a clearer picture of what you’ll actually pay over the life of your loan, including fees and charges. It’s a helpful tool for making more informed decisions and avoiding unexpected costs.
What is a comparison rate?
The interest rate shows the percentage of your loan you’ll pay in interest.
The comparison rate includes:
- The interest rate
- Most upfront and ongoing fees
That’s why the comparison rate is usually higher than the advertised interest rate, it reflects the total cost of the loan more accurately.
What does the comparison rate include?
The comparison rate typically covers:
- Application fees
- Valuation fees
- Loan establishment fees
- Legal and settlement fees
- Monthly account keeping fees
- Admin fees
- Discharge fees
Not all loans include every fee, so the comparison rate is tailored to the specific product you’re looking at.
What isn’t included in the comparison rate?
While comparison rates are helpful, they don’t include everything. For example:
- Stamp duty and other property purchase costs
- Fees for optional features (e.g. redraw facilities)
- Charges introduced after the rate was advertised
- Benefits like interest offset arrangements
Also, if you’re on a variable rate loan, your repayments may change over time, which isn’t reflected in the comparison rate.
How do lenders calculate the comparison rate?
Comparison rates (for home loans and loans secured against real property) are based on a $150,000 secured loan over 25 years. This standardised approach helps you compare different loans on a level playing field.
Even if you’re borrowing more or choosing a different term, the comparison rate still gives you a useful benchmark.
Example:
- Loan A: 5.80% interest + 0.10% fees = 5.90% comparison rate
- Loan B: 5.60% interest + 0.40% fees = 6.00% comparison rate
Despite the lower interest rate, Loan B may cost more overall.
Why is the comparison rate important?
A low interest rate might look appealing, but if the comparison rate is significantly higher, it could mean the loan comes with extra fees.
By checking the comparison rate, you can:
- Get a better understanding of the actual cost of a loan
- Avoid hidden costs
- Compare loans more accurately
- Choose a product that suits your budget and long-term goals
We’re here to help
Contributor | Anthony Moir, Treasurer
Anthony joined Pepper Money in February 2021 as Treasurer. With over 25 years of experience in treasury and debt capital markets, he has worked with a diverse range of bank and non-bank lenders. Read more.
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