Applying for a loan can be a stressful process. With multiple lenders and a vast array of products to choose from, it can be hard to know which is best for you and your situation.
If you’re struggling to find the right loan or mortgage or think your financial situation might make you a less than attractive prospect for a lender, a loan broker might be a good option for you.
What is a loan broker?
A loan broker is an intermediary who approaches different lenders on your behalf. They gather all the relevant information that you need to secure financing, which may include your credit report and information on your financial situation, like your employment status.
Loan brokers communicate between borrowers and lenders during the loan application process. They also help you prepare what documents you need to borrow money.
The main difference between a broker and a lender is that going to a lender directly might bring about just one offer of finance, whereas a loan broker can assess all of the options on the table, so you can decide which is best for you.
Loan brokers may charge you a service fee or receive commission from the lender for bringing in your custom. Make sure you check how much your loan broker charges when you first engage with them.
You’ll also want to make sure that they’re authorised and regulated by the Financial Conduct Authority (FCA). The FCA regulates financial services in the UK. It works to protect customers and keep the financial industry running smoothly. You can check that your loan broker is FCA-approved by searching for a loan broker on the Financial Services Register.
A loan broker is legally required to tell you that they are a broker, so there’s no confusion if you were considering going directly to a lender. If you choose to go with a loan broker, make sure you do some research into the kind of loans you’re looking for before you meet with them. This planning will help you form an idea of whether the loan broker is offering you a good deal or not.
What types of loan can a loans broker help with?
A loans broker can help you to secure a lender for a number of different large purchases or circumstances. Mortgage brokers are used to help you find the best mortgage deal for you – which can be daunting without a little extra help.
Loan brokers can guide you through different types of loans, including secured loans, and will charge a subsequent secured loan broker fee. A secured loan is tied to a particular form of collateral, such as your car or home, and are often used if your credit history isn’t enough assurance for an unsecured loan. They often incur lower interest rates as there is less risk for the lender.
If you plan on making a large purchase, such as buying a car, a car loans broker can help you to decide the best way forward. A car loan finance broker can act as your intermediary to help support and guide you towards the best finance option for your desired car.
What are the benefits of using a mortgage broker?
Applying for a mortgage is an exciting time, but it can be overwhelming. When you’re looking for a mortgage there are lots of things to consider, including the type of mortgage – such as commercial or residential. As well as arranging the repayment terms, early repayment fees and especially the raft of mortgage conditions.
While it’s relatively easy to find these details online, comparing the pros and cons of each product can be time consuming – and confusing – especially when you can’t see the small print. Some people benefit from using a mortgage broker to help guide them through this life milestone.
Knowledge and expertise
A mortgage broker has a unique set of skills that can be beneficial to you as a borrower. They:
- Understand the market - a mortgage broker can advise you on the best products for your needs, taking a lot of the legwork away.
- Know what lenders expect - they are knowledgeable on your individual circumstances so can provide guidance on whether or not they’re likely to lend to you before you make an application. This can be beneficial for your credit score.
- Take away the jargon - a mortgage broker should be able to explain everything to you in clear terms and help you to understand your loan, so you know exactly what you’re getting with each loan or mortgage agreement.
- Wide access to products - a mortgage broker may have access to products that might not be available on the open market, as some lenders only deal with them.
- Complete service - you may find that your broker offers a more rounded service, finding products like home and life insurance to complement the mortgage they’re arranging for you. This way you can tick a few jobs off your to-do list in one go.
Should I use a broker or a lender?
Whether you go directly to the lender or use a loan broker to shop around for loans, the choice is yours. While lending brokers can save you time and bring some valuable expertise to the table, there could be additional costs in the short term. Their existing relationships with particular lenders might mean they’re not impartial, even if the FCA says they should be.
However, if your circumstances are complicated, enlisting the help of an expert to find lenders willing to work with you can be invaluable. If you’re new to borrowing and need some help understanding all the different loan types and conditions, a broker could be your new best friend.
Make sure that you choose a loan broker accredited by the FCA and are clear on how much your loan broker charges and what they’re getting out of the arrangement before you start. This will ensure that you really are getting the best deal for you.
Should you have time, and your financial circumstances are fairly straightforward, you may find you can get a good deal directly from the lender. So, always do your homework before you approach a loans broker for their help.
Want to know more about loan brokers? Check out the Norton Finance FAQs page for more information.