When it comes to borrowing money, a lender, subject to successful completion of an affordability assessment, will issue the loan to you directly. Whereas a broker will search for a lender from the whole market or restricted panel in order to find you possible loan options that suit you and your circumstances.
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 like a middle man, reviewing your requirements and considering different lenders to find the most suitable 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.
When using a broker, make sure the broker is authorised and regulated by the Financial Conduct Authority which you can do by checking to see if they’re listed on the Financial Service Register.
Brokers are required to make it clear that they’re a broker and not a lender. They are required to disclose upfront their fees and the terms of payment. They must clearly explain the features and terms and conditions of any loan they select for you, including when you’ll be expected to make repayments and how much you’ll need to pay. Brokers also must explain the term, the interest rate, the total repayment amount and APR plus your rights to withdrawal. They are also required to disclose any commission they may receive from lenders.
When borrowing money from a lender, you’ll have to find the lender yourself and communicate with them directly. Each lender will require you to complete a loan application providing information about your personal circumstances as well as details about your financial circumstances including income and expenditure. On completion of the application, the lender will conduct an affordability and creditworthiness assessment to establish if the loan would be affordable, sustainable and suitable for you throughout the loan term. This assessment will also include obtaining information from your Credit Reference File to enable them to see if it is appropriate to lend.
If your application is successful, the lender will confirm with you and provide a copy of the features and terms and conditions of the loan. This is to confirm you understand how much you will be required to repay and over what period, as well as making sure you are fully aware of any fees and/or charges they will or may apply to your loan and your right to withdraw. If you choose to accept the loan, the lender will arrange for the funds to be transferred to you.
You can check whether a lender is authorised and regulated by Financial Conduct Authority by checking to see if they’re listed on the Financial Service Register.
Whether you apply through a broker or directly to a lender will depend on your own preference. 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.
If you’re able to take the time to compare different loans yourself, you might prefer to apply for a loan directly from a lender. Speaking to them directly can make it easier if you need to communicate any changes or ask questions. It might also save you from paying additional broker fees.
Regardless of if you use a broker or borrow directly from a lender, always ensure you agree to a loan that you can afford to repay throughout the loan term and one which will not place you into financial difficulties and/or prevent you from meeting your other commitments. Don’t forget to ensure you ask about fees and charges that either the broker or the lender may apply to the loan.
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