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When a lower rate actually costs more

The lowest advertised rate isn't always the cheapest loan. Fees, a longer term, and lost features can make a higher headline rate the better deal. Here's how to spot it.

6 min read·Reviewed 26 June 2026·Ratesniffers Editorial Team

Can a lower interest rate end up costing you more?

Yes. The headline rate is only one input into what a loan actually costs. A loan with a sharper rate can still be more expensive once you add annual package or account fees, a higher upfront cost, or the interest from a longer term. It can also cost you indirectly if the cheaper rate comes without an offset account or without the ability to make extra repayments, features that can save more than a small rate gap for the right borrower.

Why the comparison rate exists

The comparison rate is the ASIC-mandated figure that folds most fees into a single rate so two loans can be compared on a like-for-like basis. When a low headline rate carries high fees, its comparison rate climbs above a higher-headline, low-fee loan. That gap between the headline and the comparison rate is the clearest signal that the advertised rate is hiding cost. It isn't perfect, but it's the first number to check after the headline.

LoanHeadline rateFeesWhich is really cheaper
Loan ALowerHigh annual package feeComparison rate may be higher
Loan BSlightly higherNo ongoing feesComparison rate may be lower
Always read the headline rate and the comparison rate together. A wide gap between them is fees talking.

When is a higher rate the smarter choice?

A higher headline rate can be the better deal when it comes with no ongoing fees, a full offset account you'll actually use, or unlimited extra repayments that let you clear the loan faster. For a borrower parking savings in an offset, the interest saved can outweigh a small rate premium. The right loan is the one that's cheapest for how you'll actually use it, not the one with the smallest number in the ad.

  • Read the headline rate and the comparison rate side by side.
  • Add annual package and account fees to the true cost.
  • Value an offset and extra repayments if you'll use them.
  • Match the loan term to the years you have left, not a fresh 30.
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When a lower rate actually costs more: frequently asked questions

Can a lower interest rate end up costing you more?
Yes. The headline rate is only one input into what a loan actually costs. A loan with a sharper rate can still be more expensive once you add annual package or account fees, a higher upfront cost, or the interest from a longer term. It can also cost you indirectly if the cheaper rate comes without an offset account or without the ability to make extra repayments, features that can save more than a small rate gap for the right borrower.
Why the comparison rate exists
The comparison rate is the ASIC-mandated figure that folds most fees into a single rate so two loans can be compared on a like-for-like basis. When a low headline rate carries high fees, its comparison rate climbs above a higher-headline, low-fee loan. That gap between the headline and the comparison rate is the clearest signal that the advertised rate is hiding cost. It isn't perfect, but it's the first number to check after the headline.
When is a higher rate the smarter choice?
A higher headline rate can be the better deal when it comes with no ongoing fees, a full offset account you'll actually use, or unlimited extra repayments that let you clear the loan faster. For a borrower parking savings in an offset, the interest saved can outweigh a small rate premium. The right loan is the one that's cheapest for how you'll actually use it, not the one with the smallest number in the ad. Key points: Read the headline rate and the comparison rate side by side.; Add annual package and account fees to the true cost.; Value an offset and extra repayments if you'll use them.;…

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