Personal Finance

The smoke and mirrors of interest rates

Have you ever wondered why Personifi never shares with you the interest rates on your personalised loan recommendations? We only share the comparison rate. There is a BIG* difference between the two, and because we’re all about transparency, we want to explain to you the difference (and justify our move 😎)

What is an interest rate?

Interest is the largest cost of taking out a personal loan. Put simply, it’s a fee charged by the lender to the borrower in return for giving them a loan. The interest on a loan is expressed as a percentage of the loan amount and the rate charged will depend on various factors, such as the borrower’s credit risk, loan type (fixed or variable), the Reserve Bank of Australia’s cash rate and market conditions.

What is a comparison rate?

The comparison rate enables the borrower to easily understand the true cost of a loan. It’s calculated by combining the loan’s interest rate with other compulsory costs and fees that are associated with the loan. Similarly to the interest rate, the comparison rate is expressed as a percentage of the loan amount. In addition to the interest rate, a loan’s comparison rate will include costs relating loan establishment fees, ongoing fees throughout the loan’s duration, the borrowed amount, and more.

It’s important to remember that often the advertised comparison rate for a loan is based on a sample loan size and loan term, and the actual comparison rate for your loan may be different depending on your situation.

What does the comparison rate not include?

The comparison rate provides a more accurate representation of the cost of borrowing compared to the interest rate. However, it’s worth considering the following:

Some personal loans have ‘optional extras’ attached, such as an early exit fee, which aren’t included in the standard comparison rate
Potential cost savings like fee waivers or offset account options (where you can pay less interest on your loan by depositing money in a connected savings account) may also not be factored into the comparison rate.

The above is just a basic guide in relation to what you may want to consider when borrowing.

Personifi provides personalised recommendations to ensure you make the right choice for you when selecting a personal loan. Plus, we share the broking commission with you. Win-win!

So Get Started to see what comparison rate you can receive!

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