What would be included within the comparison rate of a loan?

The inclusion of both the interest rate and any applicable fees in the comparison rate of a loan reflects a comprehensive understanding of the overall cost of borrowing. The comparison rate aims to provide borrowers with a clearer picture of the total cost of a loan, expressed as a single percentage. By factoring in not only the nominal interest rate but also additional charges such as establishment fees, ongoing fees, and other costs that can affect the total amount repayable, borrowers can make more informed comparisons between different loan products.

This approach helps to highlight the true cost of a loan, beyond just the interest that one would pay. It is designed to facilitate easier comparisons between various lenders and loan types, ensuring that consumers can assess which loan offers the best value when considering both interest rates and additional fees associated with the loan. Thus, the inclusion of both elements in the calculation of the comparison rate aligns with regulatory requirements aimed at promoting transparency in lending practices.