What is a comparison rate, and does NZ use one?

A low rate in an advert tells you less than it seems to. Two loans can show the same interest rate and cost you very different amounts, because of fees. A comparison rate was invented to fix that. This page explains what it is, whether it applies to car loans in New Zealand, and what to use instead.

Car Finance Guide is a guide, not a lender. The example uses made-up numbers to show the method.

The short answer

A comparison rate is the interest rate plus the effect of fees, expressed as one percentage a year. It lets you see that a loan advertised at a lower rate with big fees can cost more than a loan at a higher rate with none.

In New Zealand it is not part of the standard checklist of what a lender must tell you. The rules here ask for the annual interest rate, the fees and the total you will repay. So the practical advice is to compare those three, and to work out your own all-in rate if you want one number.

Where the idea comes from

The idea is well known in Australia. A comparison rate there is set by a formula in the National Consumer Credit Protection Act, and lenders must show one. For home loans it is calculated on a standard amount and term. Infochoice, an Australian comparison site, describes the standard as $150,000 over 25 years, though it notes that this standard is arguably out of date and that lenders’ own disclaimers can use different bases.

That is Australian law, and it should not be assumed to apply in New Zealand. A lot of the pages that show up when you search for the term are Australian for this reason. If a page talks about a $150,000 standard loan or a particular Act, it is not talking about a NZ car loan.

What NZ law asks lenders to show

The Financial Markets Authority took over regulating the Credit Contracts and Consumer Finance Act from the Commerce Commission on 1 July 2026. Its fact sheet on initial disclosure says a lender must give a written disclosure statement before the contract is made. For a consumer credit contract, the items listed include:

• the annual interest rate, and how interest is calculated
• the total interest charges, where known, for contracts due to be repaid within seven years
• any credit fees and charges
• the payments required
• any full prepayment charge

Consumer Protection’s page on what lenders must do lists the total amount to repay including interest, and all fees such as monthly admin fees. Neither source mentions a comparison rate. That is why this page says “I could not find a rule” and not “there is no such thing”. Some lenders may show a comparison-style figure voluntarily, so ask any lender that does show one how it is calculated.

Consumer Protection also says lenders must make their standard terms and costs available to the public for each type of loan they offer. That is how you can compare before you apply.

Why a headline rate misleads

There are four common ways a rate on its own can mislead, and none of them is hidden if you know to look.

Fees sit outside the rate. Finance Now’s car loan calculator page, for example, includes a $215 establishment fee and a $2.50 monthly service fee in its estimates. ASB says its car loan has no loan processing fee. Those are different structures, and the interest rate alone does not show it.

“From” rates are not your rate. Finance Now’s page shows rates from 8.25% to 29.95% a year for personal loans until 14 January 2027, as checked in November 2026. Where in that range you land depends on your situation. A lender that says “from” is telling you the best case.

Term changes the picture. A fixed fee spread over a short loan adds more per year than the same fee over a long one. A $450 fee on a one-year loan is a big hit to the yearly cost. On a five-year loan it is a smaller one.

Early repayment changes it again. If you pay off early, you have paid the whole fee for a shorter period, so the all-in yearly cost goes up. Sorted advises checking break fees and the total fees against the price of the car.

How to work it out yourself

You do not need a formal comparison rate. You need the same three numbers from each offer, for the same amount and term.

1. The amount you receive after any fee you pay upfront.
2. The repayment and the number of payments.
3. Any extra fee you pay along the way, such as a monthly service fee.

Add up everything you pay: all the repayments plus every fee. Subtract the amount borrowed. The result is the dollar cost of the loan. That is the number to compare.

If you want it as a percentage, you can find the yearly rate that makes the repayments exactly pay back what you received. A spreadsheet’s RATE function does that: use it with the number of payments, the repayment, and the amount you actually received. Multiply the result by the number of payments in a year. That gives an all-in rate that includes fees, much like a comparison rate would.

A worked example

This is an illustration only. The rates and fees are round numbers made up for the example. They are not quotes, and the all-in rates below are my own calculation, not an official figure.

You are borrowing $15,000 over three years, paid monthly. You have two offers.

• Loan A: 11.95% a year, with a $450 establishment fee paid at the start. The repayment is about $497.86. Over 36 months you repay about $17,923 plus the $450 fee, so about $18,373 in all.
• Loan B: 13.5% a year, no fees. The repayment is about $509.03. You repay about $18,325 in all.

Loan A has the lower advertised rate, and it costs about $48 more over the three years. Turn each into an all-in yearly rate and the picture is clear: Loan A comes out at about 14.1% a year once the fee is counted, and Loan B stays at 13.5%.

The gap is small here. Change the situation and it grows. If you repay Loan A after 18 months, the $450 fee has been spread over half the time, and the all-in cost rises. If the fee were $750, Loan A would lose clearly. The lesson is the method: put fees into the comparison.

What this still does not tell you

Even a good all-in figure is partial.

• Optional products. Insurance or warranty sold with the loan is usually outside it, and rolling one into the loan means paying interest on it.
• Default and late fees. These only matter if something goes wrong, but they are worth reading. Consumer Protection says lenders must charge reasonable fees.
• Flexibility. Can you make extra repayments, skip a payment or change the date? A slightly dearer loan may be cheaper to live with.
• Your own rate. A rate on a website is a general rate. Your disclosure statement shows the one you are actually offered.

The cheapest loan on paper is not always the cheapest in your hands. Our page on cheapest car finance goes further on that, and best car loan rates shows how rates vary by lender type.

What to do next, step by step

1. Pick one amount and one term to use for every quote.
2. Ask each lender for four things in writing: the annual interest rate, every fee in dollars, the repayment, and the total repayable.
3. Check the lender’s own published terms for fees that are not in the quote, for example a monthly service fee.
4. Work out the total cost of each offer, then the all-in rate if you want one.
5. If a lender shows a comparison figure, ask what loan size, term and fees it assumes.
6. Ask about early repayment and whether a fee applies, since that changes the picture.
7. Choose on total cost and fit, and read the disclosure statement before you sign. If you would like help comparing offers, the /check form can pass your details to a broker partner, and it is your choice whether to use it. The disclosure page explains how the site is funded, and the editorial policy explains how pages are written.

Checklist

• Every quote is for the same amount and the same term.
• You have the annual rate, all fees and the total repayable for each.
• You know which fees are paid upfront and which come monthly.
• You have asked about early repayment charges.
• You have separated optional insurance from the loan itself.
• You have used the rate in your disclosure statement, not a “from” rate.

Red flags

• A “comparison rate” shown with no explanation of what it covers.
• A rate shown only as “from”, with no way to see your own rate.
• Fees disclosed only on the signing page.
• A lender that will not give you the total repayable in dollars.
• A comparison made on different loan terms, so that the lower repayment is simply a longer loan.

If repayments become hard to manage, call MoneyTalks for free, confidential help on 0800 345 123.

Sources

• Financial Markets Authority: initial disclosure under a consumer credit contract
• Financial Markets Authority: changes to credit laws, July 2026
• Consumer Protection: what lenders must do
• Consumer Protection: loans and lenders
• Sorted: car loans
• Finance Now: car loans
• ASB: car loan
• Infochoice (Australia): what a comparison rate is