A lender is a financial institution that makes loans directly to you. A broker does not lend money directly. A broker works with multiple lenders to source deals for prospective borrowers. Whether you use a broker or a lender, always shop around for the best loan terms and the lowest interest rates and fees. We took a look at a common question: what are loan brokers?
Lenders v Brokers
A broker doesn’t actually lend you money, but shops around to find a loan company known as a ‘lender’ that is willing to lend to you. They take the stress out of finding the right deal by working for borrowers. They see what is available according to the customer’s personal details and circumstances. Thus, when it comes to borrowing money, a lender, subject to successful completion of an affordability assessment, will issue the loan to you directly. Should you find a loan via a broker, once the loan is agreed your contract is with the lender, not the broker. Any problems or enquiries you have thereafter should be addressed to the lender directly. They are there to help you throughout the loan repayment period.
Borrowing money using a broker
Brokers may work well for people who want to try to pin down the ideal loan for them but don’t want the hassle of finding it themselves. The broker acts as a middle man. The brokers reviews your requirements and matches you to lenders to find the most sensible loan for you.
Brokers may charge a fee to do the work of finding you a loan whereas others won’t. They will instead receive a commission paid to them by the lender. Thus there is often no extra fees should you take the broker route. Do your research and work out which method and deal is best for you.
Legal Requirements
When using a broker, make sure the broker is authorised and regulated by the Financial Conduct Authority. You can do this by checking to see if they’re listed on the Financial Service Register.
Should I use a broker or a lender?
There is no right or wrong answer to this question. Whether you apply through a broker or directly to a lender, just ensure you find a deal tailored to your needs. Your choice will depend on your own unique situation. If you’re short on time but keen to find a range of possible loans, a broker can do the work on your behalf and search around for the right loan for you.
Whichever path you take, always ensure you agree to a loan that you can afford to repay throughout the loan term and one. Don’t overburden yourself and put yourself into financial difficulties for short-term gain. Don’t forget to ensure you ask about fees and charges that either the broker or the lender may apply to the loan.
