Further on the subject of interest

[artme]

I see now that the term "Comparison Rate" is being used in advertising, particularly for car sales.

It is impossible to read the fine print on the bottom of the TV screen (for me, atleast ) so just what does this mean.??

[Dropcat]

It's the interest rate you pay with any fees factored in. 5% looks better than 7%, but if they don't mention the upfront fees & charges it's hard to tell, 7% might be the better deal.

It'slike phone & internet plan prices where they give you the total yearly cost (which includes setup, handset, etc) and not just the monthly charge.

[artme]

I regard this as misleading!!!

[I_wanna_Shed]

I regard this as misleading!!!

I think it was brought in by the Government (?) to stop misleading schemes. Eg:

Bank A offers an average interest rate of x%, with a $4,000 setup fee.
Bank B offers a higher interest rate of y%, with no setup fee.

If they hid the fees, Bank A looks the cheapest, whereas over the life of the loan Bank B may be cheaper as it is without the massive fee.

So like Dropcat says, it 'should' even out the field. The comparison rate takes into account all fees - sort of bundles the fees up into the interest rate to arrive at the comparison rate.

I feel sorta educated now that I'm reading the below book as a 'mature age' Uni student (not that it makes me knowledgeable on this by any means!). Finance: talk about ZZZZZzzzzzzzz..... but I'm sure financy types would say that about my IT types. Anyway, enough of the Woodwork Forum, back to study

[Dropcat]

I regard this as misleading!!!

Not mentioning the fees like they use is misleading, I wanna Shed explained it better. Say you wanted a $10,000 loan over 10 years. Offer 1 is 4% & $1,000 in fees, offer 2 is a higher 6%. The lower interest is better, right? Nope, they're both the same. The 4% would look especially attractive if the $1,000 in fees was in small print or glossed over. In other words, the effective interest rate for both offers is 6%, so that's what is used when comparing the offers. Banks etc, are good at hiding the real cost of a loan. Look at mortgages, the percentage rate gets bandied about a lot, but what about the monthly admin fee they charge? Say it's only $10, that's still about $2,500 extra you pay over the life of a loan. It really should say "If you take a loan this $10,000 car will cost you $13,300". The rental places that hire a TV for 'only $3 a day!' irk me no end. $1,100 (or less!) buys a nice TV these days, but if you want it now and are a bit math-challenged...