Please stop using Comparison Rates

[resjudicata]

@puerazaelis It's not useless , it's very useful and makes it very easy to quickly identify bad loan products. I certaintly accept $150,000 is probably the wrong number for basis now and needs to be updated to $350,000 +-.

If your point was that you can get more information on loans if you look at the details. Well yeah no shit sherlock .....

 

[puerazaelis]

@resjudicata No - it's really not useful. Please stop spreading that. The whole point of the post is to try help people understand so they'll stop pushing this nonsense (not that 'looking into the loan details is useful', but thanks for acting like a knob for no reason).

You could compare:

• CBA's 3 year fixed rate: 7.37% Comparison Rate
• UBank 3 year fixed rate: 5.95% Comparison Rate

By your logic, you can quickly identify that UBank's product is much better, and CBA's is a 'bad product'.

But in reality, CBA's rate is 5.59%, and UBank's is 5.99%. Even including CBA's ongoing package fee, it's still a much better deal.

You just need to renegotiate after 3 years, or just get a post-fixed discount setup upfront (which isn't hard to do).

$150k or $350k, comparison rates are garbage.

 

[billyc115]

@puerazaelis What's making CBA look so much worse?

How does UBank get a comparison rate lower than the bare interest rate?

Like, I get your initial contrived examples. But normally most of the lenders are kind of in the ball park - they tend to have set up and/or termination fees around $500, interest rates that are non-zero (and also clearly on show), maybe ten or so dollars a month ongoing.

It's mind boggling that a loan with 1.4 points higher comparison rate could be the winner!

I'll see if I can quickly find them...

Edit: ok, UBank rate gets better as you pay down. CBA has a $395 p.a. fee (or $600 upfront plus $8 p.m.). It's too late at night to figure out the loan amount at which Commo comes out ahead.

 

[puerazaelis]

@billyc115 CBA looks worse primarily because of the revert rate.

The SVR of CBA (or revert rate) is 8.30%, which brings the comparison rate WAY up.

Revert rate for UBank is 5.54%, which brings the comparison rate down.

For CBA (and most banks), you can just pre-approve a post-fixed interest rate discount. Or, when the 3 years is up, just renegotiate/re-fix/refinance.

You could even take the 3 year fixed rate with CBA, then refinance to UBank to get their revert rate + cashback (if offered).

Per original post: Comparison Rates are useless.

 

[billyc115]

@puerazaelis Thanks for the detail. I guess I'd still say comparisons are "ok" for the average schlub who doesn't know about getting those kind of arrangements and who probably won't be refinancing willy-nilly. But it's a good thing for us "financially savvy" crowd to be aware of, thanks.

 

[amarie07]

@puerazaelis Wait a fixed loan for two years at 2 percent then 6.5

Is better than a 6 percent loan

Thanks for guiding us Mr finance wizard.

 

[puerazaelis]

@amarie07

The point of the post​

Your head

 

[amarie07]

@puerazaelis Hey I provided an argument

You just say and homeins

Look great you spent ten mins writing a essay

But brevity is the soup of wit

 

[puerazaelis]

@amarie07 I have literally no idea what you're trying to communicate

 

[loveallandbeloved]

@puerazaelis Lmao no one uses the comparison rate.

Whenever the comparison rate is advertised. there’s usually a disclaimer somewhere stating it’s $150k over 25 years.

It’s a non issue and a silly ahpra requirement that’s fallen through the cracks.

In almost 10 years of banking, I can’t remember a time where I’ve discussed a comparison rate.

 

[puerazaelis]

@loveallandbeloved I've been asked about it twice this week.

 

[loveallandbeloved]

@puerazaelis You have such a massive rant about a non-issue. I sent a message in my work group chat and no one remembers discussing comparison rates as it’s widely known they’re useless.

There are disclaimers whenever the comparison rate is advertised too

 

[hearforonequestion]

@puerazaelis Great point. At this stage you should be able to set your comparison. Define the number of years and the loan amount and it spits out the total cost and comparison rate for that set of inputs based on that lenders fees.

 

[glaubenszentrum]

@puerazaelis So i can understand with fixed rates but variable comparison rates is a good comparison

 

[puerazaelis]

@glaubenszentrum It's probably 'good enough' when comparing only variable rates (excluding introductory rates).

It's still not as good as just comparing interest + fees though.

Option A & B in my example are both variable rates, but Option B is utter garbage.

In real life, the fees generally aren't that substantial, so a comparison rate wouldn't be a bad starting point (assuming it's based off your loan amount, not $150k).

But again - it's easier to just calculate ongoing repayments including fees; and compare upfront/end fees separately.