Equipment Finance Rate vs Comparison Rate

Key highlights

• The interest rate is the borrowing cost with no fees included
• The comparison rate folds standard fees into one figure
• A low rate with high fees can mean a high comparison rate
• Compare on the comparison rate and total cost, not the headline

What the interest rate covers

The interest rate, sometimes called the headline or advertised rate, is the cost of borrowing the money expressed as an annual percentage. It is what most people focus on and what lenders tend to promote, because a low number looks appealing. But on its own it is incomplete: it says nothing about the fees attached to the loan. Two facilities with the same interest rate can cost very different amounts once establishment fees, monthly account fees and other charges are added. That is exactly the gap the comparison rate is designed to close.

What the comparison rate adds

The comparison rate takes the interest rate and folds in standard fees, such as establishment and ongoing account fees, to produce a single percentage that better reflects the true cost of the loan. Because it captures both interest and fees, it lets you compare quotes on a more even footing. A facility with a slightly higher interest rate but low fees can have a lower comparison rate than one with a tempting headline rate and heavy charges. As a rule, the comparison rate is the more honest figure to judge by.

Why the two can differ sharply

The bigger the fees relative to the loan, the wider the gap between the interest rate and the comparison rate. A lender might advertise an eye-catching low rate, then recover margin through a large establishment fee or monthly charges, which pushes the comparison rate well above the headline. On smaller loans this effect is magnified, because fixed fees are spread over less money. When you see a big gap between the two rates on a quote, it is a signal to scrutinise the fee schedule closely before proceeding, because that gap is telling you where the real cost of the loan is hiding.

The limits of the comparison rate

The comparison rate is useful but not perfect. It is calculated on a standard example loan amount and term, which may not match your actual deal, so treat it as a guide rather than the exact cost of your facility. It also may not capture every fee, such as certain payout or discharge charges. For your real cost, look at the total amount repayable over your specific term, including all disclosed fees. The comparison rate is best used to shortlist quotes, with the total cost confirming the winner. Treat it as a helpful signpost rather than the final word, and always verify against the actual figures for your own facility.

How to use both when comparing

In practice, use the interest rate to understand the borrowing cost, then rely on the comparison rate and the total repayable to judge value. Make sure each quote is for the same loan amount, term and structure so the figures are comparable. Overdrive takes one application, compares 80+ banks and non-bank lenders, and presents offers on a consistent basis, so you are weighing genuine total cost rather than being drawn in by a low headline rate that hides its charges elsewhere. That way the quote you choose is the one that genuinely costs the least, not just the one that looks cheapest at first glance.

If a quote's headline rate looks sharp but you are unsure what it truly costs once fees are added, a quick comparison clears it up. Send Overdrive your asset and business details for an indicative, no-obligation comparison across 80+ lenders, presented on total cost including the comparison rate. It costs nothing to check, and seeing past the headline number is the best way to make sure a low rate is genuinely a low cost.