Would you buy a new VW if they offered you 0.0% to 2.9% Finance Comparison Rate?

[Sunny43.5]

After reading all these posts I am still non the wiser on the term Comparison Rate , sorry it making no sense to me whatsoever . Why is the word comparison used even . When you take out any loan car house whatever I was under the impression that lets say if you are wanting a loan of $100000 and the interest rate over the whole term is 10 % per annum then you will repay the full amount plus the 10% for each year calculated on the balance after each year . Have I got it right " Dazed and Confused "

[wai]

The comparison rate is a nonsense. It is supposed to allow you to compare the deals from different loan providers, but the reality is that it simply adds more confusion.

The comparison rate is ALWAYS lower than the actual rate that is charged. Now if loan providers were to advertise the actual rate they will charge AND a comparison rate, those looking at the loans would be able to work out which loan had higher fixed charges. As it is done now, it is a meaningless number to quote, as it can only be used to COMPARE it against a loan for the same item from a different loan provider.

What you say is right. If you have a loan for $100,000 at 10% interest per year, then with simple interest, for each year you have the loan, you would pay $10,000 in interest. If you took a loan that had 0% per year comparison rate, then you are certainly NOT going to be paying $0 in interest.

So, anyone looking for a loan, ask what the ACTUAL interest rate will be, and what other charges (like loan establishment fee, service fee, etc) will be. If you are going to buy a car, you can understand the basic figures and do to the "throw away" comparison rate just that. Throw it away and never refer to it again. It is the only way that things will change.

The comparison rate is like the published fuel consumption figures for cars. You use them to compare, but never expect to achieve them on a regular basis. Yes, you might get close, but highly unlikely to do so.

Forget the comparison rate, and ask for the real rate.

[brad]

I disagree with Wai.

I've just looked at my banks website & the comparison rate is consistently higher - which is what I'd expect.
Looking at infochoice on the RHS - same deal comparison is higher than the actual rate.

WAI - show me where your explanation is the case please?

[Eaglehawk]

I also disagree with Wai. My interpretation of comparison rate is this:

It's the "effective" rate you pay, taking into account all the yearly/monthly fees/charges associated with the loan. So, because NAB charge me $395/year, my "10%" interest rate isn't really going to be 10%, it's going to be whatever I pay, plus an extra $395/year.

Comparison rates were forced into the finance advertisements to allow consumers to compare "apples with apples". Much like they are trying to do the same for mobile phone plans. It's not perfect, but it gives you an idea on the extra charges when you switch to that product.

If I'm wrong, please correct me

[wai]

I disagree with Wai.

I've just looked at my banks website & the comparison rate is consistently higher - which is what I'd expect.
Looking at infochoice on the RHS - same deal comparison is higher than the actual rate.

WAI - show me where your explanation is the case please?

So you are saying that you can go to a dealer that is offering a 0% comparison and you will be paying 0% interest? After all, after taking in all the fixed fees and charges, you are not going to be paying back just the principal. If the comparison rate is supposed to take into account all the fixed fees and charges, then with a 0% comparison rate, you would still only be paying back the principal. I don't think so.

The comparison rate is supposed to compare your loan, fees and charges over something like a 4 year term against the standardised loan of $150,000 over 25 years. So, of course you will get better comparison rates for small loans and worse comparison rates for home loans or loans that are significantly greater than the standardised loan.

[wai]

I also disagree with Wai. My interpretation of comparison rate is this:

It's the "effective" rate you pay, taking into account all the yearly/monthly fees/charges associated with the loan. So, because NAB charge me $395/year, my "10%" interest rate isn't really going to be 10%, it's going to be whatever I pay, plus an extra $395/year.

Comparison rates were forced into the finance advertisements to allow consumers to compare "apples with apples". Much like they are trying to do the same for mobile phone plans. It's not perfect, but it gives you an idea on the extra charges when you switch to that product.

If I'm wrong, please correct me

The comparison rate is established against a standardised loan. It is only for comparison and not an absolute statement of the rate.

The thing is that it does not matter either way. When you sign the loan document, just make a note of the actual interest rate you will be paying.

[Dutch77]

I think there is a little confusion over what a comparison rate is here - partly due to the wrong definition quoted earlier.

It has nothing to do with standardised loans and terms - it relates to that loan only, and simply groups in all fixed charges as monthly and annual fees etc. all skew the actual interest rate.

A more accurate description is:

The Comparison Rate is an indicative interest rate that is designed to help members identify the 'true cost' of a loan. The Comparison Rate takes into account the interest rate and "ascertainable fees and charges" that relate to the loan, in an attempt to express some of the costs of a loan into a single (comparison) rate.

"Ascertainable fees and charges" are those that are definitely payable during the life of the loan - such as application fees, monthly or annual charges, cost of valuation and legal fees.

What isn't included?
The Comparison Rate does not include fees and charges that may occur or are based on some future "event" - such as redraw, early termination fees, progress payments or fees charged by some institutions when you decide to switch lenders. In addition, government and statutory charges are not included - as these are standard irrespective of the type of loan or who the lender is.

[brad]

So you are saying that you can go to a dealer that is offering a 0% comparison and you will be paying 0% interest? After all, after taking in all the fixed fees and charges, you are not going to be paying back just the principal. If the comparison rate is supposed to take into account all the fixed fees and charges, then with a 0% comparison rate, you would still only be paying back the principal. I don't think so.

The comparison rate is supposed to compare your loan, fees and charges over something like a 4 year term against the standardised loan of $150,000 over 25 years. So, of course you will get better comparison rates for small loans and worse comparison rates for home loans or loans that are significantly greater than the standardised loan.

Show me where you get this idea that it is compared to a standardised loan of $150k over 25 years. I've looked at a heap of definitions of comparison rate & none say this.

Perhaps you should go & check before putting your cok on the blok

[tigger73]

Well Dutch is the accountant so he should know.

At the end of the day VW has only so much margin in their cars. They can either offer low interest rates, additional "no cost" features, cash back, corporate discount, dealer incentives, etc. However they promote their cars to get you to hand over your (or your banks) cash is a bit of a lottery really.

Some offers work better for some people than others. Low interest rates are probably better for personal customers who aren't using for business use but maybe Dutch is better qualified to comment on this (general advice only ).


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[Polo GTEye N9]

I think there is a little confusion over what a comparison rate is here - partly due to the wrong definition quoted earlier.

It has nothing to do with standardised loans and terms - it relates to that loan only, and simply groups in all fixed charges as monthly and annual fees etc. all skew the actual interest rate.

A more accurate description is:

This is a good reflection of Comparison Rate means....

A more accurate description is:

The Comparison Rate is an indicative interest rate that is designed to help members identify the 'true cost' of a loan. The Comparison Rate takes into account the interest rate and "ascertainable fees and charges" that relate to the loan, in an attempt to express some of the costs of a loan into a single (comparison) rate.

"Ascertainable fees and charges" are those that are definitely payable during the life of the loan - such as application fees, monthly or annual charges, cost of valuation and legal fees.

What isn't included?
The Comparison Rate does not include fees and charges that may occur or are based on some future "event" - such as redraw, early termination fees, progress payments or fees charged by some institutions when you decide to switch lenders. In addition, government and statutory charges are not included - as these are standard irrespective of the type of loan or who the lender is.