What is a Comparison Rate: Advantages of Using Comparison Rate Tool for Your Australian Home Loans
Oftentimes, you go into loans blindly, relying only on the computations presented to you. You don't even understand how the rates are calculated. Before you commit yourself to another loan, it's crucial that you must know how to use the comparison rates tool.
What is a Comparison Rate Tool
A Comparison Rate Tool is a tool in comparing different loan interests from various credit companies. It's also termed "Calculator", and is a mandatory requirement implemented by the Australian Government for credit companies. This calculator should be displayed on their websites.
The calculator or Comparison Rate Tool automatically computes all the financial data you need, after you have chosen your options on Loan Term, Loan Amount, Period of repayment, and Lender or bank.
It will calculate automatically the interest of your loan, its fixed rate or fixed monthly repayments, ongoing monthly repayments, upfront fees, discharge fees, other miscellaneous fees, and the total repayments you have to fulfill.
You can then compare which lender has lesser interest and which one has an easy installment scheme.
What are the factors affecting Comparison Rate?
How much interest does the company charge in comparison with other companies? The interest rate must be specified in exact amounts for a particular loan. Is the interest compounded daily or is it flexible?
What's the maximum period for the loan payment? What's the minimum loan term? The Comparison Rate tool must show all of these data, so you can decide correctly.
How much is the maximum loanable amount? What about the minimum? There would be correct computations of the interest rate based on these data.
or the payments, it should be specified if you pay once a month, twice a month or quarterly. Through the Comparison Rate tool, you can choose which payment scheme would suit you best.
Processing fee and other charges
Through the tool, you can conveniently compare the processing fees and other charges of the various credit companies.
Pros of using the Comparison Rate Tool
- It's convenient because you don't need to browse several credit companies but you'll be viewing only the Comparison Rate Tool.
- It's reliable. You can use it with enough self-confidence because it can compute quite reliably for commonly loaned amounts.
- It's helpful in providing a bird's eye view of all possible options for you.
Cons of using the Comparison Rate Tool
- Companies with the highest interest rates may not be able to conclude any sale.
How to use the Comparison Rate Tool
Choose your loan amount
The usual home loan in Australia is around $365,000. You can obtain a lower or higher loan depending on how qualified you are.
Choose your loan term
Select a loan term that doesn't drill a hole in your pocket through its exorbitant interest rates.
Choose payment terms
Choose a payment term that you're certain you can fulfill. If you're not sure, choose a longer term. If you have more cash later, you can always pay in advance to decrease the interest.
It's better to opt for long term payment than choosing a shorter term that you cannot fulfill, and then being given penalties for your late payment. Take note also of the ongoing rates and fees.
Compare the interests of each lender
Using your Comparison Rate Tool, compare the interest of each company. Try computing different amounts to determine what option will give you the lowest interest rates.
Choose your lender
Finally, choose your lender based on you results. Flexible payment premiums are better, if you can avail of it. Of course, choose the lender offering the lowest interest.
Here are some lenders you can consider
Generally, the basis for the computations for loans is this
- Loan amount = $150,000
- Loan term = 25-year term
- Principal loan and loan interest
The National Australian Bank (NAB)
The NAB, which operates more than 1,700 stores in Australia, is one example of a lender that shows the Comparison Rate Tool on its website.
NAB's Choice Package offers an interest rate of 5.28% pa (per annum), for home loans ranging from $100,000 to $249,999, while interest rates of loans ranging from $250,000 to 499,999 is 5.08% pa (per annum). Annual fee of $395 is charged.
A comparison rate shows that the interest in other lenders are higher; for $100,000 to $249,999, it's 5.66% pa (per annum), and for home loans worth $250,000 to 499,999, the interest is 5.46% pa (per annum).
ANZ's Breakfree Home Loan Package
Australia and New Zealand Banking Group (ANZ) Breakfree Home Loan Package offers also low interest of 5.38% pa for home loans amounting to $150,000 to 249,999. You can also save $2,000 in the first year from this package. It charges an annual fee of $375.
Other options are CBA's Wealth Package, Westpac's Premier Advantage Package and St George's Advantage Package.
In summary, when taking out a loan, always remember to use the Comparison Rate Tool to help in you selection, and your computations will be a breeze!
Do you have any tips on comparison rates? Let us know in the comments.