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friends or foes?

It always amazes me to see people using dodgy brokers when trying to apply for a loan not only that, people actually pay brokers to source them a loan! I’ve seen one unsuspecting borrower paying over 10K to a broker to get a business loan. That’s in addition to the bank’s application fee! Why? Keep in mind that the loan approval process is not that complicated and most banks will keep it simple enough for you to apply for loans, otherwise they’ll have no customers.

There seem to be a perception out there that brokers compare loans and find you the best loan. This is a myth in my view. A good broker would do exactly that, a good broker would investigate and get you a loan that suit your requirements. However, many I came across don’t.

Most brokers do not work for you, they work for themselves for their own interests. Instead of researching for the best loan available for you, most will just put your loan with their affiliated banks. This will limit your choices greatly. What makes it worse is the practice of pushing you toward a particular lender because that lender pays higher commission, this is definitely not in your best interest. Let face it, if a broker have to build up his/her lending book to get a recurring income, then the choice between a lender who pays trailing commissions and one that doesn’t is obvious.

What do most brokers ACTUALLY do?

Most would ask you to complete an application form, hand over the required documents, and then pass it on to the bank of their choice. That’s it!!! You could do the same thing. Yes, you will have to do a bit of running around, but you will be the one that decide what’s best for you. With the Internet so readily available, researching for the right loan is not as daunting as it used to be. Try finding information on any search engine online, such as Google, and you will get countless websites offering loans comparison. After you decided on the best loan for you, just apply directly to the lender that you’ve chosen.

Another perception that people have about brokers is that they are all qualified and are coming from a finance background. The fact is most brokers have no formal qualifications and by law you will not need one to become a broker. I personally know one that went from owning a tanning salon to being a broker. I just don’t get it. Why do people trust their finances with people who don’t know much about finance? Would you go to an unlicensed financial planner who doesn’t know what a managed fund is?

Another emerging trend is accountants and business advisors becoming brokers. Again, the good ones will not try to push you to any particular bank. They will assist you to try and work with your current bank. The good one will not accept commission payments from banks as this will cause conflict of interests. However, many accountants are becoming brokers being lured by the lucrative commission dollars. Let face it, 0.5 to 0.8 of the loan amount in payment for doing very little is quite tempting.

Therefore, if you are being pushed to submit your loan to a particular bank for no obvious reasons then be prepared to ask them a few questions. Ask them to show you the benefits of this bank over another one? If they’re getting commission payment? Keep in mind that moving bank can be a costly process, be prepared to pay fees, fees, and more fees!!!

So if you really have to use a broker use the following list as a guide:

• If a broker asks you for a fee for their services, find another. All brokers are paid by the lender, asking you to pay them aswell is being really greedy.

• Do they know what they’re talking about? Can they explain the benefits of a particular feature?

• Beware of the smooth talking car salesman. Do they have any finance experience? One broker I came across can’t explain the benefits of a variable rate loan over fix rate loan? Are you kidding?

• Do they have access to a range of lenders, not just one or two that they have a biased relationship with? Just remember that interest rate is not the only thing that makes a loan a good loan.

• Do they present you with a few options for YOU to pick, most broker will just tell “oh, we got you this loan” without consulting you or explaining why that particular lender.

• Do they belong to a professional organisation? Most professional bodies required minimum competencies . It helps a bit but no guarantees.

At the end of the day, it is your finance. Therefore, do your own research, get recommendations from friends and family if you can and make the brokers work for you and not the other way around.