In full, APR means Annual Percentage Rate. The concept emerged from the UK’s consumer credit act of 1974, requiring lenders to state the total cost of a loan as a yearly percentage.

In Australia, APR works differently. APR is the primary cost of taking a loan. It’s the interest a lender charges you annually on the loan you have. In calculating APR for a loan, the lender considers the balance that is left after each term. They use this to work out what your monthly repayment will be.

However, APR does not include the cost of managing your loan. It doesn’t account for extra charges that come with taking a loan. Therefore, it’s not possible to know how much your loan will cost from the APR only.

Generally, the annual percentage rate of a long term loan is higher than the rate of a short term loan. Therefore, a mortgage loan taken for 25 years can have a 3% APR while the APR charged on a £500 loan for 6 months is 48%. As a result, it’s more convenient to ask for the exact amount you’ll be repaying when you are taking a loan. If you need a personal loan take a look at our homepage.

Loans often come with charges. These charges vary between lenders and can be a deciding factor for how expensive a loan is. They include establishment fees, annual and monthly fees, exit fees, and other charges.

Loan charges are calculated and charged as a percentage of the loan, in addition to the interest rate. This percentage is known as the Average Annual Percentage Rate (AAPR) or comparison rate. While the comparison rate accounts for such fees as Upfront charges and monthly fees, it doesn’t account for others early exit fees, redraw, and switching fees.

The rate used by most borrowers to compare different lenders is the comparison rate. It gives you a more accurate picture of the loan cost. Even though it doesn’t represent all charges, it accounts for the basic fees you’ll pay when you take the loan.

What are the Charges that Make Up the Average Annual Percentage Rate?

The charges that make up the AAPR or comparison rate include the following:

  • Interest rate. This may come as variable, fixed, or introductory rate loan. If you have a fixed or introductory rate loan, the revert rate is included in the interest rate
  • Loan term. This explains how long you’ll be repaying the loan
  • Charges and fees. These include Upfront fees, Valuation fees, Ongoing costs, Exit fees

Do Average Annual Percentage Rates Cover All the Features of a Loan?

AAPR does not cover every charge or feature that a loan represents. Some of these features can make a loan easier to deal with, even if the annual rate is higher.

Fees that are represented in comparison rates include early exit fees, redraw fees, switching costs, transaction fees, etc. A lender can charge you hundreds or thousands of dollars when using any of these features.

Other features include offset accounts, portability, extra-repayments, etc. It’s possible to save some money on the loan when using any of these features.

What Difference Does AAPR Make?

According to Australian Consumer Credit Code (ACCC), lenders are required to publish both interest rate and comparison rate on their website. This gives the borrower a closer insight to the cost of the loan.

With the comparison rate, you can tell the cost difference between two lenders that are advertising the same interest rates.

Here’s an example:

This comparison rate example assumes a loan term of 30 years and a principal of $300,000.

Loan X

Loan Y

Loan Z

Variable rate




Fixed rate


Upfront fees




Ongoing fees




Exit fees




Comparison Rate




You can notice how fixed interest rates before reversal, upfront, ongoing, and exit fees make a difference in the loan charges of these lenders.

Look out for a warning concerning the comparison loan rate for each lender. It will tell you how accurate the quoted AAPR is. Also check for a lender’s key facts sheet. This is where you will find their interest rate, comparison rate, and the total amount you’ll repay at the end of the loan term.

Frequently Asked Questions

What is the average interest rate I can get on a personal loan?

You can get an average interest of 12 — 14% per annum on unsecured personal loans and 8 — 12% on secured loans. The type of loan you are taking determines the average interest you’ll be charged. Peer-to-peer lenders will usually set their interest rate according to how much risk they think you pose.

Why is the interest rate on my personal loan changing?

Variable interest rate on a loan will often fluctuate within the loan term; it can go up or down. The most influencing factor on this fluctuation is the official cash rate set by the Reserve Bank of Australia. Variable rates change with any move in official cash rate.

Do all credit cards have multiple interest rates?

Credit cards have more than one interest rate. Whether it is a low rate interest card, a balance transfer car, 0% purchase card, etc. A credit card will often have a purchase rate, cash advance rate, and other rate applying to its type. These rates will suit different needs. Always find out the rates on a card to determine if it suits your needs.

What is the best interest rate credit card?

In Australia, the best interest rate credit card for you will depend on your needs and the features the card offers. You will have to decide what you want the credit card for — purchases, travels and foreign transactions, etc. This is how you decide which card suits your situation most.

Should I rely on comparison rates when applying for a home loan?

You should take a close look at the comparison rate of a home loan when applying, but also consider other features that come with the loan. Features like portability, redraw facility, offset accounts, split facility, and extra repayments can make a huge difference in managing a loan.