Comparison rates are a tool designed to help borrowers understand the real cost of their personal loan, allowing you to compare different lenders quickly.
While well-intended, the number can still be confusing when trying to find the best cash loan for your situation.
Because of strict government regulations, lenders must base their advertised comparison rates on a specific, mandated scenario.
Which might not actually match the exact amount or term you want to borrow.
In this article, we’ll explain how comparison rates work on Medium Amount Credit Contracts (MACCs), the mandatory NCCP scenario lenders must use, and how you can use this figure to make an informed decision.
Interest Rate vs Comparison Rate
The interest rate is the annual percentage of the loan balance that the lender charges in return for providing you the credit.
In the MACC space, this is legally capped at a maximum of 48% p.a. calculated on a reducing balance.
However, the standard interest rate fails to represent the full out-of-pocket cost of a loan because it ignores fees.
The comparison rate rolls the interest rate and the mandatory fees into a single annual percentage rate.
To see why the comparison rate is so important, let’s look at two hypothetical lenders offering the exact same $2,500 loan over a 24-month term.
Both legally cap their establishment fee at $400, but they structure their ongoing costs very differently:
| Loan Feature | Lender A (Transparent) | Lender B (Hidden Fees) |
| Loan Principal | $2,500 | $2,500 |
| Repayment Term | 24 Months | 24 Months |
| Establishment Fee | $400 | $400 |
| Advertised Interest Rate | 48% p.a. | 28% p.a. |
| Monthly Account Fee | $0 | $25 |
| Advertised Comparison Rate | ~66% p.a. | ~66% p.a. |
(Note: The comparison rate sits around 66% for both because the calculation factors in the $400 upfront establishment fee alongside the interest and monthly fees).
Analysing the Results
If you only looked at the advertised interest rate, Lender B looks like an incredible deal at just 28% p.a. compared to Lender A’s 48% p.a.
However, Lender B charges an ongoing monthly account keeping fee of $25.
Over the course of 24 months, that adds $600 in extra fees to your loan.
The comparison rate instantly reveals the real cost of the loan.
Once you factor in that $25 monthly fee, Lender B is charging you the exact same total cost as Lender A.
The comparison rate cuts through the marketing and levels the playing field for the borrower.
The NCCP Mandatory Scenario for MACC Loans
To ensure lenders don’t manipulate the math to make their loans look cheaper, the National Consumer Credit Protection (NCCP) Act requires all lenders to use the exact same loan amount and term when advertising their comparison rates.
For a MACC loan (which covers amounts between $2,001 and $5,000), the NCCP mandates that the advertised comparison rate must be based on a $2,500 loan repaid over 24 months (104 weeks).
Whenever you see a comparison rate advertised for a MACC loan, you will legally see a warning attached to it stating:
Warning: The comparison rate is true only for an example loan amount of $2,500 and an example term of 2 years. Different terms, fees or other loan amounts might result in a different comparison rate.
You’ll see this exact scenario detailed on our cost page.
How This Affects Your Actual Rate
Because MACC personal loans feature a legally capped establishment fee (up to $400), your actual effective rate will shift depending on how much you borrow compared to the $2,500 mandated scenario.
If you borrow $5,000 over 24 months
The $400 establishment fee makes up a much smaller percentage of your total principal (8%).
Therefore, your actual annualised rate will be lower than the advertised comparison rate.
If you borrow $2,500 over 12 months
The $400 fee makes up the same percentage as the scenario, but you are paying it off in half the time.
Therefore, your actual annualised rate would be higher than the advertised comparison rate.
The comparison rate is an excellent baseline for comparing Lender A to Lender B, but remember that the mandatory $2,500/24-month warning means the rate shown is a benchmark, not necessarily your final effective rate.
What Fees are Included in the Comparison Rate?
A comparison rate includes all the mandatory fees associated with setting up and managing the loan.
It does not include conditional fees that only trigger if you alter the contract or miss a payment.
Included in the Comparison Rate:
- Establishment Fee (Capped at $400 for a MACC loan)
- Monthly Account Keeping Fees
- Risk or Application Fees
Excluded from the Comparison Rate:
- Late Payment Fees
- Reversal/Dishonour Fees
- Penalty Interest (when an account is in arrears)
- Early Repayment Fees
(Note: While some lenders charge a hefty penalty for paying your loan off early, Gusto Cash charges absolutely zero early repayment fees!)
Frequently Asked Questions
Why does every MACC lender use $2,500 and 2 years for their comparison rate?
Because the NCCP Act legally mandates this exact scenario for this category of lending. It ensures consumers are comparing apples to apples when looking at different lenders in the medium-amount credit space.
Is a lower comparison rate always better?
Not always, but usually. A comparison rate is only relevant for the specific scenario used in tha calculation. If your loan is significantly different then your cost of credit will also change relative to the comparison rate in most cases.
You also still need to check what fees are in your contract that may be excluded from the comparison rate. For example, a loan with a slightly lower comparison rate might lock you in with massive early exit fees, whereas a loan like Gusto Cash allows you to pay it off early for free.
Can I use comparison rates to compare a SACC to a MACC?
No, it is like comparing apples and oranges. A SACC (Small Amount Credit Contract under $2,000) does not use traditional annual interest. Instead, it uses a flat 20% establishment fee and a flat 4% monthly fee. A MACC uses standard interest on a reducing balance.
A MACC will almost always be cheaper relative to the amount borrowed.
Understand Your Costs Before You Apply
The comparison rate is an excellent tool to ensure you aren’t being tricked by hidden monthly admin fees.
By understanding that the advertised rate is based on the NCCP’s $2,500/24-month scenario, you can compare lenders accurately and find the fairest deal.
At Gusto Cash, we believe in 100% transparency. Our MACC personal loans feature a standard capped establishment fee and a simple reducing interest rate, with no additional monthly account keeping fees and no early exit penalties.
If you need a cash loan between $2,001 and $5,000, get in touch with our team today to see your options!
