Receipt 1Code ss 5, 157 to 160
When the law requires one
Part 10 of the National Credit Code states its own object: to help consumers identify the true cost of credit, by making the comparison rate mandatory “in advertisements for consumer credit (other than under continuing credit contracts or low cost credit contracts) if an interest rate is advertised.” Three parts of that sentence decide whether a borrower will see one.
| The loan | What the Code says |
|---|---|
| Mainly for personal, domestic or household purposes, to buy, renovate or improve residential property as an investment, or to refinance credit provided wholly or mainly for such an investment | The Code covers this credit when the borrower is an individual or a strata corporation, among its other conditions. If an advertisement for it states an annual percentage rate, it must also contain the comparison rate. An advertisement may also carry one when it states no rate. |
| A continuing credit contract | The Code defines this as “a credit contract under which: (a) multiple advances of credit are contemplated; and (b) the amount of available credit ordinarily increases as the amount of credit is reduced.” Part 10 does not apply to advertising for these, or for low cost credit contracts. |
| Wholly or predominantly for a business purpose | Outside the Code altogether, because the Code applies only to credit for the purposes in the first row. ASIC makes the same point about responsible lending: business-purpose loans are not regulated, even when secured over the borrower’s home. The Code’s comparison rate rules are not written for these loans. |
Where a comparison rate does appear in a document other than an advertisement, the same rules apply to it, with the necessary changes. How the purpose of a loan is decided, and what a business purpose declaration does, are in entry 2.
Receipt 2Regulation 100 · Code s 166
What goes into the figure
The figure is worked out under regulation 100 from the amount of credit, the repayments and the credit fees that can be worked out when the rate is given, leaving out government fees and duties, and the Code says fees that turn on a future event, such as repaying early, need not be counted at all.
Receipt 3Moneysmart
Reading it beside a low doc loan
Moneysmart says low doc loans usually come at higher interest rates and can carry terms that limit what a borrower may do. Set against the rules above, those two halves land differently.
Shows in the figure
A higher interest rate
The interest rate is the base of every comparison rate, so a higher rate shows directly, along with the fees that can be worked out up front.
May not show
A term that only bites later
A cost that turns on a future event, such as repaying early, need not be in the figure at all.
Moneysmart suggests asking a lender or broker about things a home loan’s Key Facts Sheet leaves out. Three of its points, in our words, go straight to terms of that second kind:
- whether you can pay extra off the loan without being charged for it;
- whether paying the loan off early, or moving it to another lender, would bring break costs;
- what rate you move to once a fixed or introductory rate runs out.
For a loan with no comparison rate at all, Moneysmart’s mortgage calculator works out repayments and the total cost of a loan from its interest rate and length.