So, you need a loan. Perhaps you need a small personal loan to buy a car, put towards your upcoming wedding or holiday, or a larger amount to finance a house purchase? After hours of online searches, and agonising conversations about which car / wedding dress / holiday destination / house to buy, you have finally decided to make an offer or purchase. You’ve no doubt used some online calculators to get a feel for what you can afford, or even talked to your bank, but before finalising a significant purchase it’s helpful to have your finance pre-approved and ready to go. It can make the purchase process go far more smoothly for you, and reduce the number of conditions you may have to declare during the purchase process.
So, how should you go about securing your finance? Would an independent loan broker help you get a better deal? Or are you best to approach your bank or other lenders directly? This article will take you through the pros and cons of using a loan broker, or seeking finance directly from lenders. Sometimes your personal circumstances make sense to use one option over another. Let’s find out more.
What is a loan broker?
A loan broker acts as the middleman between you and the bank, or other loan providers. They can source a variety of up to date interest rates from different lenders and provide you with your options. In other words, they can find a range of personal loan or home loan deals for you, given your personal circumstances and the purpose of the loan.
Loan brokers are regulated and must comply with New Zealand’s Financial Markets Authority. Loan brokers will help you with the necessary loan paperwork, and navigate the process of securing your finance. The purchase process and finance paperwork can be a stressful time for people, and a broker can help make sure you head into your loan agreement with all the information you need. It’s worth noting that while a loan broker may help with finding a range of loan options, only authorised financial advisers can make recommendations or provide advice on which loan you should select.
What can a loan broker do for you?
Loan brokers offer a range of services to simplify the process of seeking finance for your loan.
A key task that a loan broker can undertake for you is the negotiation of your loan finance with lenders or banks. You give your loan broker authority to execute both ‘buy’ and ‘sell’ orders, on your behalf, for your loan or property finance.
Brokers will also save you the time and effort of shopping around for the best loan rates, as they will present you the top rates available. They can take some of the stress and complexity away from navigating the purchase process (if the loan is for something specific such as a house or car) and associated financing options – their role is to simplify the options available and help you find the best solution for you and your circumstances.
A loan broker will have close working relationships with lenders, so they will be familiar with the lender criteria and important details for each loan type across lenders. This should save you time pursuing a finance option that won’t be suitable for your circumstances.
Experienced loan brokers will often have market knowledge and industry insights for the market, your region, and the economic conditions that they will be able to share with you. Is this the best time for you to buy? Should you buy now or wait? Are there other areas you should consider in your search criteria and so on. This can be particularly useful for larger, more complex purchases such as a car or house.
Pros and cons of using a loan broker
A loan broker can save you time
If you’re not a careful researcher or don’t have the time to trawl the internet for interest rate and fee comparisons, a loan broker can save you time. Once a loan broker understands your current financial position (income, expenses and other debt commitments) and your financial goals, they can help you navigate the loan market and seek the best interest rates and conditions for your financial situation. You’ll still need to do the initial work of getting your loan broker up to speed with your financial position though, and ultimately while your loan broker can provide you with options, the choice will still need to be yours.
Bear in mind that a direct lender, such as Nectar, can provide you with an instant online personalised loan quote, which certainly takes the hassle out of reviewing rate tables on a lender’s website. With Nectar you can select your loan type and complete a short online application, then receive a personalised interest rate, borrowing limit and repayment options all online, in a matter of minutes.
A loan broker may charge you a fee for their service
Be sure to ask about fees in your first conversation with a loan broker. They may charge you a brokerage fee for their services, or they may be receiving a commission from the lenders they work with for recommending certain loan types. While there are many reputable brokers, some brokers may not be transparent about how they are paid or compensated, so it makes sense to ask how they get paid.
If your loan broker does operate on a commission basis, bear in mind that they may not present you with all your available options – if they’re incentivised to offer particular loans, this may inadvertently reduce your available options.
A brokerage fee (more common for personal loans) can range from between a few hundred dollars to up to $1,000 or more. This fee is usually added to your loan amount and will have interest charged on it. Do your homework to make sure that the brokerage fee isn’t more than the savings you might see from going to a lender directly. Note that a $600 fee on a $10,000 loan (with a term of 3 years) can add as much as an additional 4% interest per year.
A loan broker can help you find finance options that you can’t
There are a number of reasons that you might struggle to obtain a personal loan or finance. You might have a bad credit rating, be self-employed or have only been in New Zealand for a short time. Any of these scenarios can make it difficult to meet the criteria of the main banks and lenders. Loan brokers do have more lenient loan options available if you’re finding your financing journey challenging.
Find a loan broker you trust
Finding an independent broker is the first step to developing trust with a broker. You want to be sure that they are providing you with loan options that fit your personal circumstances, and that they have your best interests in mind. Brokers naturally have their own trusted relationships and favourite lenders. The reasons for these relationships may have stemmed from the ease of doing business, or more attractive commissions. Take some time to understand the relationships your broker has in place – they are legally required to declare these to you.
Be aware you may be subject to cross selling
Loan brokers have relationships with a wide range of financial providers, so when dealing with a broker you may find yourself being offered insurance policies and if buying a home, services such as conveyancing. These additional services are not compulsory and shouldn’t form any part of your loan agreement.
You are not under any pressure to accept these additional offers or policies. Working directly with lenders like Nectar that offer a simple and quick approvals process to avoid being caught in a cross-selling scheme is a big drawcard for many, especially when your loan requirements are straightforward (ie. you’re applying for a straightforward personal loan).
The benefits of going direct to a personal lender
There are a number of reasons why you may choose not to use a loan broker and instead go directly to a personal finance lender. In particular, it makes sense for people seeking smaller, simpler personal loans. Some people prefer the fact that going direct to an online lender means they can manage the application process quickly with limited fuss – a quick application process, prompt approvals and money in your account within the same day? It can be hard to beat if you have a financial emergency, or your time is precious.
Not everyone has time to set up a face-to-face meeting with their bank or loan broker. If you’re in a rush, then a personal lender is a great option. They often have less paperwork too, especially with straight forward lending.
Personal lenders still take the time to understand your personal situation. They have loans to fit your specific requirements – from car loans, to home improvement loans, and they need to follow the law to ensure they are upfront about any fees, interest rates, loan terms and so on.
See how Nectar compares to banks and finance companies in this handy comparison table.
How do you know whether to use a loan broker?
We believe that loan brokers can be useful for complex loans such as a home loan or a personal loan when your situation may be complex. But be careful to check their loan fees, what lender relationships they have and understand their commission structure.
As personal loans are a simpler type of loan, we think you should shop around to know you’re getting the best deal. Take into account how much effort you’re willing to put into meetings and paperwork, the speed at which you need the loan, as well as interest rates and charges.
By using a reputable New Zealand finance company such as Nectar, you can be assured you’re in safe hands.
How can Nectar help?
There is a lot to think about, but applying for a personal loan doesn’t need to be difficult. Check out Nectar’s handy loan calculator to see how much you could borrow. Get started with Nectar for an instant quote. Borrow better, faster today!