Comparison Rate Calculator

Interest Rate Versus Comparison Rate

A comparison rate combines interest with included fees in one annualised figure. An interest rate measures the interest charged on the loan balance. Fees increase the cost even when two loans have the same interest rate.

This calculator estimates the rate implied by one loan advance and the repayments you enter through its settings. It generates equal repayments from the interest rate and dates, then adds your fees. The result is an indicative cash-flow estimate, not a compliant advertising disclosure.

A fixed fee has more effect on a small loan because it takes a larger share of the amount borrowed. A shorter term gives an upfront fee fewer repayments to spread across. Keep the amount, dates and term the same when comparing fee structures.

The Cash Flows Behind the Calculation

The calculation finds the discount rate that makes future payments worth the net amount received at the advance. The net advance is the loan amount less upfront fees. Each later cash flow contains the regular repayment and recurring fee, with any balloon added once to the final repayment.

The solver discounts each payment by its elapsed time. It adjusts the periodic rate until the discounted payments equal the net advance. The displayed annual rate is that periodic rate multiplied by the annualisation factor and by 100.

Monthly and yearly settings use actual elapsed days divided by 365, with annualisation factors of 12 and 1. Weekly settings use seven-day periods and 52.18. Fortnightly settings use 14-day periods and 26.09.

The repayment count is years multiplied by 12, 52, 26 or 1 respectively. The first repayment date anchors the schedule. Monthly dates keep that day where possible and use month end where necessary.

The model solves the regular repayment from the same discount convention before adding fees. It retains unrounded cash flows during calculation. Actual contracts can use daily interest accrual, rounded instalments and business-day adjustments, which can change the result.

Regulation 100 of the National Consumer Credit Protection Regulations sets the statutory method and requires nominal annualisation. It includes ascertainable credit fees and excludes government charges. This tool uses the entered fees without deciding their legal classification.

Car and Home Loan Examples

These hypothetical examples use monthly repayments and the calculator's starting dates. The home loan uses $600,000 over 30 years at 6%, with no balloon. The car loan uses $30,000 over five years at 8%, with a $5,000 balloon.

The monthly payment includes the recurring fee. The car loan's last payment also includes its $5,000 balloon. In the home loan starting example, $4,200 of included fees adds about 0.04 percentage points to the interest rate.

An advertised rate uses a designated amount and term, such as $150,000 over 25 years or $30,000 over five years. Your client's amount and fee schedule can produce a different result. Keep the loan amount and repayment assumptions beside each home or car loan figure you compare.

Limits of an Indicative Result

The result covers the fees you enter and the generated repayment schedule. It omits future rate changes, extra repayments, redraw activity and offset balances. It also omits separate annual fees unless you convert them into an approximation at each repayment.

Enter upfront fees as costs paid separately when the loan advances. A fee added to the loan changes the amount financed and needs a different cash-flow model. The balloon is an extra final payment that reduces regular repayments, so include the amount actually owed at maturity.

Optional fees and uncertain future costs need separate consideration. An offset account, flexible repayments or a fixed-rate period can affect a client's choice without appearing in this number. Moneysmart's home loan guidance explains how fees and loan features affect that choice.

Compare the rate beside total dollar payments and the client's expected loan duration. A loan held for five years can have a different cost ranking from the same loan held for its full term.