Please stop using Comparison Rates
- Thread starter puerazaelis
- Start date
puerazaelis
New member
@thewayofholiness Most people are not looking at a basic loan.
And if they were looking at basic loans, the comparison rate is practically useless anyway ($0 ongoing fees with basic loans and no revert rate).
Comparison rate could be useful if done well - but it's just a waste of time usually as it takes more time to calculate that than just do it correctly.
And if they were looking at basic loans, the comparison rate is practically useless anyway ($0 ongoing fees with basic loans and no revert rate).
Comparison rate could be useful if done well - but it's just a waste of time usually as it takes more time to calculate that than just do it correctly.
thewayofholiness
New member
@puerazaelis It’s a tool, it’s limited use but it’s still useful.
I’ve had friends who had no idea abt the comparison rate ask for my opinion and when I asked them about the fees (obvious when looking at comparison vs advertised), they had no clue there were additional fees.
So it is useful for normal ppl who aren’t bankers.
I’ve had friends who had no idea abt the comparison rate ask for my opinion and when I asked them about the fees (obvious when looking at comparison vs advertised), they had no clue there were additional fees.
So it is useful for normal ppl who aren’t bankers.
puerazaelis
New member
@thewayofholiness I think it's specifically not useful for normal people.
I added a real-life example to the original post.
This is why comparison rate shouldn't be considered by people that don't understand the ins and outs.
I added a real-life example to the original post.
This is why comparison rate shouldn't be considered by people that don't understand the ins and outs.
thewayofholiness
New member
@puerazaelis You’re assuming comparison is the only thing someone looks at, and then trashing the entire measure on that basis.
If I was getting a loan now, I wouldn’t get fixed. So comparing CBA vs UBank, let’s assume $400k at 80% LVR.
CBA has the standard variable for 6.09% (comparison 6.47%), that already tells me there are additional fees (hence a useful measure). They also have the extra home for 6.04% (comparison 6.05%). So now I consider if the first one has features that are worth it to me. And it might, who knows, this was done on a quick scan.
UBank has 5.54% (comparison 5.56%), that to me seems much lower. So if I’m going to talk to the banks, I already have a front runner in mind.
Edited for correct CBA rates at 80%
If I was getting a loan now, I wouldn’t get fixed. So comparing CBA vs UBank, let’s assume $400k at 80% LVR.
CBA has the standard variable for 6.09% (comparison 6.47%), that already tells me there are additional fees (hence a useful measure). They also have the extra home for 6.04% (comparison 6.05%). So now I consider if the first one has features that are worth it to me. And it might, who knows, this was done on a quick scan.
UBank has 5.54% (comparison 5.56%), that to me seems much lower. So if I’m going to talk to the banks, I already have a front runner in mind.
Edited for correct CBA rates at 80%
puerazaelis
New member
@thewayofholiness Elgh. Deleted my comment as I had references to 3 year fixed, not SVR - was going to redo. Now I think your comment is gone.
Anyway. Your point is that you can imply fees from the Comparison Rate (which is correct).
My point, is it would be more beneficial for the customer to look at the actual fees; and for the bank to advertise the fees.
Anyway. Your point is that you can imply fees from the Comparison Rate (which is correct).
My point, is it would be more beneficial for the customer to look at the actual fees; and for the bank to advertise the fees.
chimesandstorm
New member
@puerazaelis Monthly repayments + fees doesn’t seem like the right comparator either.
When I compare I am interested in the cost of fees and interest for 2 years (or the period of a fix). That is what this loan will cost me until it’s time to check in and refinance.
In most cases, if comparing loans with the same repayment period, repayments + fees ought to get the same outcome, but if was advising someone of a golden rule for comparing, I’m eliminating the risk that things get distorted by variances in the repayment profile.
All I care about is the dollars I am handing over that don’t reduce my balance between the day the loan settles and the day I choose a new one.
When I compare I am interested in the cost of fees and interest for 2 years (or the period of a fix). That is what this loan will cost me until it’s time to check in and refinance.
In most cases, if comparing loans with the same repayment period, repayments + fees ought to get the same outcome, but if was advising someone of a golden rule for comparing, I’m eliminating the risk that things get distorted by variances in the repayment profile.
All I care about is the dollars I am handing over that don’t reduce my balance between the day the loan settles and the day I choose a new one.
@puerazaelis An Ausfinance post about finance! Sir (or Madam), you are a bloody legend!
And also, solid point on comparison rates.
And also, solid point on comparison rates.
puerazaelis
New member
rewind2grace
New member
@puerazaelis I was trying to explain how repayments are calculated on outstanding balance + redaw in that same thread where there was comparison rate nonsense. I got downvoted for it. A bit baffled as I didn't think i was coming off rude and provided evedence.
@puerazaelis Sir, this is a strip club
resjudicata
New member
@puerazaelis As a senior executive of banking, we all laughed when this regime came in 20 years ago, so many ways to interpret and juggle the rules to get what u want as an outcome.
And a fact, not one bank has ever been fined or brought to heel over a false / misleading comparison rate. There is no enforcement of the rules.
And a fact, not one bank has ever been fined or brought to heel over a false / misleading comparison rate. There is no enforcement of the rules.
thehappypeanut
New member
@puerazaelis Great post! I actually think comparison rates do more harm than good. It is like making it compulsory to wear helmets made out of paper.
puerazaelis
New member
@thehappypeanut This is my issue.
Theres a lot of 'it still can be useful to quickly narrow products down"; but I agree with you.
They should have just legislated that they show all upfront/ongoing/end fees easily instead of the CR.
Theres a lot of 'it still can be useful to quickly narrow products down"; but I agree with you.
They should have just legislated that they show all upfront/ongoing/end fees easily instead of the CR.
resjudicata
New member
thank you 
@puerazaelis Comparison rate is classic Dunning Kruger. People think they’re clever asking about it when in reality they have NFI
@puerazaelis Just get a post-fixed discount setup... what? Pardon my ignorance.
puerazaelis
New member
@ilovemoon Big banks have high Comparison Rates because their fixed rates revert to their SVR (around 8.30% currently).
When you setup the loan, you can setup a discount on their revert SVR.
For example, a 2.50% post-fixed discount will mean you revert to 5.80%>
Your Banker/Broker should be setting this up regardless (but doesn't always).
When you setup the loan, you can setup a discount on their revert SVR.
For example, a 2.50% post-fixed discount will mean you revert to 5.80%>
Your Banker/Broker should be setting this up regardless (but doesn't always).
runeman2215
New member
@puerazaelis But don't comparison rates already include ongoing fees? Isn't that the whole point? So that they can't have an artificially low interest rate and just jack up the annual or monthly fee? It makes it easier to compare.
puerazaelis
New member
@runeman2215 Comparison rate overexaggerates the relevance revert rate for fixed/intro rates.
It also overexaggerates fees, as it's based on a $150,000 loan amount.
Please refer to original post for examples.
It also overexaggerates fees, as it's based on a $150,000 loan amount.
Please refer to original post for examples.