Key highlights
- Interest rate = the base cost of borrowing only
- Comparison rate = interest rate plus most fees
- A low rate with high fees can still cost more overall
- Compare both figures across lenders before deciding
The interest rate on machinery finance is the base cost of borrowing, while the comparison rate adds most fees and charges to give a fairer picture of the true cost. A loan with a low interest rate but high fees can have a higher comparison rate — and cost more — than one with a slightly higher rate and no fees. Strong deals may start from around 6.55% p.a., subject to lender assessment. Overdrive compares 80-plus lenders on one application so you can weigh both, all figures indicative.
What the interest rate actually covers
The interest rate is the headline percentage that determines how much interest you pay on the amount borrowed. It is the figure lenders advertise most prominently because it looks simple and comparable. But on its own it tells you nothing about fees, and two loans with the same interest rate can cost very different amounts once charges are added. For a strong, asset-backed machinery deal the base rate may start from around 6.55% p.a., subject to lender assessment — yet that number alone should never be the sole basis for choosing a loan, because it deliberately excludes the cost of fees.
What the comparison rate adds
The comparison rate takes the interest rate and folds in most of the fees and charges attached to the loan, expressing them as a single percentage. Its whole purpose is to help you compare loans on a fairer, more honest basis. A loan advertised at a tempting low interest rate but loaded with establishment and monthly fees will show a noticeably higher comparison rate, which is your signal that it costs more than it first appears. Whenever you weigh one quote against another, the comparison rate is a far better guide than the base rate alone.
Why the gap between them matters
The difference between a loan's interest rate and its comparison rate tells you how fee-heavy it is. A small gap means low fees; a large gap means the fees are doing a lot of work behind an attractive headline. This is exactly how a loan with a low advertised rate can end up more expensive than a rival with a higher rate but minimal fees. When you see two quotes, look at the size of that gap on each — it quickly reveals which lender is being transparent and which is relying on a sharp headline to draw you in.
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 deal, and it does not capture every possible fee — early-payout charges and some optional costs can sit outside it. It also cannot reflect the loan's flexibility, the lender's settlement speed or how a balloon changes your total cost. So treat the comparison rate as a strong starting point rather than the final word, and always ask for the total amount repayable on your actual deal alongside it.
How to use both when you compare
The practical approach is to gather, for each quote, the interest rate, the comparison rate, the full list of fees and the total repayable over your term. The interest rate shows the base cost, the comparison rate shows the fee-adjusted cost, and the total repayable grounds it all in real dollars for your specific loan. Read together, they cut through marketing and reveal genuine value. Comparing this way across many lenders — rather than trusting a single headline — is the surest route to a deal that is actually as good as it looks.
Sorting the genuinely sharp deals from the ones that only look cheap is where a broker earns their keep. Overdrive's Simon Kendrick compares 80-plus banks and non-bank lenders on one application, laying out interest rates, comparison rates and total costs so you can see the truth behind each headline. Figures are indicative and subject to lender assessment. Get in touch for a free, no-obligation quote and compare with clear eyes.
Frequently Asked Questions
Which figure should I trust more, the interest rate or the comparison rate?
For comparing loans, the comparison rate is generally more reliable because it includes most fees, giving a truer sense of cost. The interest rate alone can be misleading if fees are high. That said, always confirm the total amount repayable on your actual deal, since the comparison rate uses a standard example.
Why is the comparison rate higher than the interest rate?
Because it adds most fees and charges to the base interest rate. The larger the gap, the more fee-heavy the loan is. A small gap suggests low fees and a transparent deal, while a big gap is a signal to check the fine print closely before committing.
Does the comparison rate include every cost?
No. It captures most standard fees but can exclude early-payout charges and some optional costs, and it is calculated on a standard example loan that may differ from yours. Use it as a strong guide, then ask the lender for the total repayable on your specific deal to be sure.
Can a higher interest rate be the cheaper loan?
Yes. A loan with a slightly higher interest rate but few or no fees can cost less overall than one with a low rate and heavy charges. That is precisely why the comparison rate and the total repayable matter — the headline rate on its own can point you to the pricier option.
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