Loan brokers in Australia are available to facilitate borrowers in acquiring loans of all types. Most loan brokers are able to recommend the most suitable loan options for customers, and some specialize in the provision of specific loan products such as payday loans, short term loans, home loans, and personal loans, to name a few.
Borrowers prefer loan brokers because it expedites the loan acquisition process. Loan brokers also offer a comprehensive analysis of the loan products being offered by the lenders in their pool of lenders, and customers can benefit from this advice. Brokers also conduct a thorough assessment of your affordability to evaluate whether you would be able to afford the loan, before recommending products to you.
How Do Loan Brokers Work
If you have ever used the services of a mortgage broker, then you should expect personal loan brokers to work in almost the same manner. A loan broker can help you figure out the best loan for your intended loan purpose.
Tip: For example, if you need to buy a car, a broker will likely recommend a list of lenders providing car loans, as they are cheaper than unsecured personal loan options.
The biggest reason to opt for the services of a loan broker is convenience. It can take you a considerable amount of time to find a suitable loan product to fulfill your needs, especially if you have a compromised credit history that prevents you from being accepted by lenders with strict eligibility criteria.
Borrowers can potentially improve their credit score in the long term by using the services of a loan broker. Applying to multiple lenders at the same time can damage your credit rating, as most lenders conduct a background credit check that leaves a mark on the applicant’s credit file and can significantly reduce their chances of getting approved for loans in the future.
Through a loan broker, borrowers are able to apply for only those loans for which they have a high probability of getting accepted, and also ones they can afford. This way, borrowers don’t have many hard checks on their credit file that can potentially damage their credit score, and also have a relatively lower probability of defaulting on a loan due to adequate affordability assessment already conducted by the broker.
However, a loan broker might not be a suitable option for you if you need a small amount, as most brokers would have a minimum lending amount of $5,000 and would likely only recommend loans above this amount. This excludes many lenders in Australia that offer unsecured personal loans for as little as $2,000.
Finding A Good Loan Broker
When looking for a loan broker, you should evaluate possible options based upon the following criteria:
- Types of Loans Offered – the broker should be offering the loan products that are suitable for your needs.
- Interest Type – most brokers operating in Australia offer loans that have a fixed interest rate.
- Terms and Conditions – make sure you check out the terms and conditions applicable to the loans provided by the lenders on the broker’s lender pool, especially if you are allowed to make early repayments, redraws on repayments, or early payouts, and the fees, if any, applicable on these services.
- The Pool of Lenders – the more lenders there are in a broker’s pool of lenders, the better your chances are of getting the best loan for your needs. Make sure you pick a broker that has an extensive pool of lenders, usually more than 5.
- Operating Mechanism – most brokers in Australia are now offering services online, while some continue to operate over the phone, fax, or email. Choose a lender that operates over a medium that you prefer.
- Funding Timeframes – every broker has a different processing time, including the time it takes for the broker to file a loan application on your behalf, for the lender to approve the loan, and the funds to reach your bank account. You should opt for a broker that quotes a funding timeframe that is suitable for your needs. Also, keep in mind, brokers operating online are likely to have faster processes compared to paper-based ones.
- Customer Service – a broker with an efficient customer service system will ensure your borrowing process remains smooth, and help is available whenever you may need it. Test out brokers by calling on the provided number on the broker’s website to see how long you have to wait before connecting with a customer services representative.
There are a few factors you must take into consideration before subscribing to the services of a loan broker.
The Lending Panel
Avoid brokers that have a small lending panel, as your choices would be limited and you may end up with a loan that is not the best one considering your affordability and purpose. A wider panel of lenders may also result in a loan that is cheaper for you, as it may carry a lower interest rate. Also, a broker with a small panel does not offer much, as you can evaluate a small number of lenders yourself without opting for a broker’s services.
Most, if not all, brokers work on a commission. However, this commission is usually charged to lenders and not the customers.
Tip: you should evaluate whether the broker’s recommendations are being influenced by the money that is paid to them by lenders. Some brokers might rank lenders higher if they pay more, so it’s important to verify the credibility of the broker by conducting a simple online search.
It is important to evaluate all the fees and charges that a broker will charge you for facilitating you with the loan acquisition process. Some brokers may not clearly mention all applicable fees on their website, but a quick call to inquire about the same should be enough to learn about them. As a rule of thumb, you should avoid brokers that charge a heavy fee to borrowers.
Does using the services of a loan broker cost more than approaching lenders directly?
Not necessarily. While some brokers may charge borrowers an application fee or a monthly subscription fee, most brokers charge the lenders in their pool on a commission basis. The lender might include any commission paid to your broker in the loan agreement, so make sure you evaluate all applicable costs mentioned on the loan agreement before signing it.
Can I use a broker to apply for a loan with a lender of my choice?
You can only apply for a loan with a lender that is present on the broker’s pool of lenders.
Can I switch brokers after I acquire a loan through a broker?
Some clauses in your loan agreement may prevent you from switching brokers for the duration of your loan term. It is likely that you might be required to cancel your existing loan before shifting from one broker to another.