In a nutshell, a lender is there to provide you with a loan directly. You will speak with them directly and come to a legal agreement which then means funds will be sent to your bank, if you are accepted. There is no middle man.
Alternatively, a broker is an affiliate or company that markets loans from direct lenders, but does not actually lend you the money. Instead they act like a representative for various lenders and work on commission they receive from loans applications that are accepted.
Using a broker may give you a “better deal” because they are able to match your details with dozens of lenders that offer a range of products, however this isn’t always true. For people with a great credit score, and is the “perfect” customer, working with a broker like a comparison site can make the process a lot easier, as you are able to see the differences in offerings.
Brokers are unlikely to have access to extensive information about your credit history that a lender will, so they are unable to get a full understanding of what loans you will qualify for based on your credit file information. Therefore, you may be provided with a good deal, but a product that is not best for you. A broker, based on the limited information they may have, will make an educated guess meaning you may miss out on loans that are better suited to you and possibly save you money.
Sometimes going to the lender directly is a quicker method, as they may be able to give a decision in minutes whereas a broker may have to look around. This might eat up valuable time, in which you need funds.
A sneaky way to see whether they are a direct lender or broker, if you are unsure, is to look out for the phrase “loan providing service”. This will indicate they are a broker and are provided a service for other companies. Also, it is important to see if you will be charged for their service, although most brokers do not charge for matching you with a lender.
When going directly to a lender, you need to make sure of the following;
- They are authorised by the FCA (Financial Conduct Authority). This means that you will be protected at all times, and there will be rules in place for the lender.
- Make sure that they have a real postal address and not a PO box number. But also ensure they have a valid contact number. This is because there are false companies out there that offer fraudulent loans. But making sure there are valid contact details, it can reduce the risk of you being caught out.
- Make sure your identity is protected at all times. Before you provide either a broker or direct lender with your personal details, especially bank details, ensure they are using a security software. Ensure the website they are running has a “https://” address.
Always do your research when looking for a loan. Make sure you are getting the best option for yourself. If you are financially struggling, always speak to third party advice services which are free. For example, StepChange or Citizens Advice Bureau.