Call us on 1300 794 893

Your Money

What is a comparison rate?

Recently a major bank ran an ad for a fixed interest rate loan at 4.99 per cent for three years. Beside the 4.99 per cent was a lightly shaded box with seven per cent in it and the words “comparison rate”. What does this mean?

Showing the two rates was legally responsible, however, there is a big and deceptive matter that must be addressed. My experience is that even people in the bank’s call centres don’t understand the comparison rate.

People think the comparison rate is the rate you compare your loan to others, but it’s actually the effective or real rate you pay, which includes the fees and charges that are added to the advertised interest rate.

It turns an advertised 4.99 per cent loan for three years into a seven per cent loan for three years, in truth.

The Australian Competition and Consumer Commission and the country’s consumer affairs ministers should change the term comparison rate into the true rate.

And there actually should be people paid by governments called public servants who look out for bad banking practices and terminology that can fool Australians into losing money.

Every Australian borrowing money should know that they must always ask what is the comparison rate?

Right now there are tens of thousands of families locked into fixed interest rate loans with horrendous exit fees. This has happened because banks don’t make a song and dance about these big exit fees and too many Australians are financially in the dark.

Television shows like Today Tonight are often criticised because of their sensationalism, but they actually do a great job to inform ordinary Australians about the financial hazards out there. They show more care for consumers than governments in these areas.

Banks can be internationally famous for corporate social responsibility, but they still hoodwink people into deceptive loans.

The financial services industry hides behind technical jargon and poor disclosure, and Australian consumers are mistreated as a consequence. Make sure you ask every lender what the actual or real or true rate is with all of the charges and fees added into the total cost of the loan. That’s when you have the comparison rate, which you can take and compare with other lending products and their comparison rates.

For advice you can trust book a complimentary first appointment with Switzer Financial Services today.

Important information: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.

Published on: Thursday, December 03, 2009

blog comments powered by Disqus
Pixel_admin_thumb_300x300 Pixel_admin_thumb_300x300 Pixel_admin_thumb_300x300