Which of the following would be included within the comparison rate of a loan?

The comparison rate of a loan is designed to give borrowers a more comprehensive understanding of the true cost of borrowing. It includes not only the interest rate being applied to the loan but also any fees that are associated with arranging the loan, such as bank loan arrangement fees. The purpose of the comparison rate is to allow borrowers to compare different loan offers on a like-for-like basis, which means that it reflects the cost of the loan beyond just the nominal interest rate.

Including arrangement fees in the comparison rate helps borrowers to see the complete financial picture and make more informed decisions. This is critical for helping consumers understand their long-term financial obligations. By diffusing information in a transparent manner, the Australian Securities and Investments Commission (ASIC) mandates that comparison rates include these fees to protect consumers.

Other aspects, such as the principal amount borrowed, are important in the context of calculating repayments but are not part of the comparison rate itself. Similarly, while associated risks are a vital consideration when taking out a loan, they do not factor into the computation of the comparison rate. The focus of the comparison rate is on the costs, primarily the interest and relevant fees.