Finance products aren’t always straightforward, are they? Finding the right loan for your needs and understanding its ins and outs can be a time-consuming process, which can be hard if you don’t have much free time to spend on hunting for the best deals.
What a lot of people don’t know, though, is that not quite getting your personal loan or lender right could have major consequences in the form of a steeper interest bill, damaged credit or both. That’s why plenty of Aussies go through personal loan brokers to give them a hand with their finance needs.
What is a personal loan broker?
A personal loan broker is a financial professional who acts as the middleman between you and your lender. They work with a panel of lenders, who they compare on behalf of their clients to find the best fit for their desired loan terms and eligibility criteria.
How it works is simple: instead of applying directly to a lender, your broker helps prepare your personal loan application and submit it to the most suitable lender on their panel. In effect, they take some of the grunt work out of the process that you would’ve had to have done otherwise.
- Certificate IV in Finance and Mortgage Broking
- Diploma of Finance and Mortgage Management (mandatory for some brokers/aggregation groups)
- Australian Credit Licence (or act as an Authorised Credit Representative under an existing Licence)
- Be a member of an industry body like the Mortgage and Finance Association of Australia (MFAA) or Finance Brokers Association of Australasia (FBAA)
There are two main ways that brokers are paid: directly by you (usually a fee built into the loan agreement) or a commission (paid by the lender for bringing you to them as a customer). You should always ask how a broker makes their money and what fees they charge.
How does going through a personal loan broker compare to applying directly with my lender?
There are a few important things to think about when you’re considering applying through a broker or doing everything yourself. First and foremost, applying directly with your lender means you won’t have to pay any fees to anyone for helping you along the way. It also means you won’t be limited to a broker’s panel of lenders; you can choose from any lender in Australia whose criteria you meet.
However, on the flip side, having a broker there to read through everything acts as a barrier between you and loans with criteria you don’t meet or terms that don’t suit you. Unless you’re planning to read all the terms and conditions, you might be applying for a product that doesn’t work for you.
It may also be more difficult to find a loan for certain profiles, such as if you’re a stay-at-home parent or have struggled with your credit in the past, simply because brokers will naturally know which brokers are more suitable for imperfect situations.
Should I finance a car through my dealership instead of using a personal loan broker?
If you’re looking for a loan to buy a car, motorbike, caravan or another asset, a common option available is to take out a loan through the dealership. This is obviously convenient, but they can also be appealing options with rates as low as 0% p.a. in some cases.
However, it’s important to note the following for dealerships:
- Vehicle purchase prices may be inflated to compensate for the low interest rates
- Interest rates might only be available at the basement rate for a short period of six to 12 months, after which they revert to a higher rate
- You may be required to take out your loan over a shorter term (such as three years) or attach a steep balloon payment to pay at the end of your term
- Your dealership sales rep might try to upsell you on products you don’t need
How do I find the best personal loan broker?
Here are some of the key areas to look out for when choosing your personal loan broker:
- Accreditation: first and foremost, make sure they hold all the accreditation and licences that they need to. If they don’t, keep looking.
- Reviews: see what their past customers think of them. This is a great way to unearth red flags.
- Lender panel: check out how many lenders are on their panel. The more partners they have, the better the selection for your application.
- Fees: ask whether they charge fees. As mentioned, not all brokers charge fees to their customers, so it’s worth finding out before kickstarting the process.
- Speak to them: make contact with them either over the phone or via email. It can be as simple as checking out their vibe and seeing how transparent they are.
The pros and cons of using a personal loan broker
Pros
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Have the hard work done for you
Personal finance brokers handle much of the legwork, saving you time and effort in searching for the best loan for your needs.
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Get help from an expert
Experienced brokers will have extensive personal loan knowledge, enabling them to provide valuable insights and advice.
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Better negotiating power
Brokers are in a better position to negotiate lower rates and fees for you than you might be able to secure by yourself.
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Protect your credit score
By identifying suitable loans, brokers can help you avoid multiple credit inquiries, which can negatively impact your credit score.
Cons
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More expensive than going on your own
Depending on whether you have to pay a fee, you might be tacking several hundred dollars, if not more, onto your loan deal.
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Limited to their lender panel
Your personal loan application can only ever be seen by lenders on your broker’s panel, so if it’s a limited selection, you might be missing out on a better deal.
