After deciding that you’d like to take out a loan, you may wonder what the next step is. While the majority of people will start researching lenders and loan products that might suit them, others will seek the help of a broker to find them that perfect deal.
Is it ever worth using a broker to find a loan? Here, we’ll look at the pros and cons of taking a loan out through a broker compared with going straight to the lender, to help you decide which approach will work best for you.
What is a loan broker?
A personal loan broker is a company that helps people seeking loans to find a product appropriate for their circumstances. They will sift through the various lenders’ requirements and do a lot of the legwork for you. They may also help you to avoid wasting time applying for loans that you are ineligible for.
Some brokers will charge a fee for their services while others will instead receive a commission from the lender with whom you take a loan out with.
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When might using a broker be useful?
If you do decide to use the services of a personal loan broker, make sure they are registered and regulated by the Financial Conduct Authority.
There are situations when using the services of a broker might come in handy. For example, if you have a poor credit rating and are struggling to find a lender that will consider you, a broker could help you to find a product for which you are eligible. Alternatively, if you have no time to spend on carrying out research for loans yourself, the services of a broker might be valuable to you.
If you do decide to use the services of a personal loan broker, make sure they are registered and regulated by with the Financial Conduct Authority.
Can I research loan deals myself?
Thanks to the internet, it has never been easier to research loan deals yourself. Comparison sites and lender websites will help you to get all the information on a loan that you need before you apply.
A good place to start is to obtain your free credit record from a company like Experian, which will help you to see whether lenders are likely to view you as a strong candidate for a loan. Once you are armed with your credit score, you can start to research the various lenders and the best rates for the type of loan that you require.
What should I consider when researching personal loans myself?
- The amount you need to borrow: It’s advisable to only borrow the amount that you really need, never more. But be realistic as taking out a further loan to cover extra costs may cost you more than borrowing the right amount on a single loan.
- The time you need to pay it back: You will usually pay less in total interest charges if you take the loan out for a shorter term. Most lenders will have minimum and maximum loan terms, so bear this in mind when doing your research.
- What you can afford to pay back each month: Personal unsecured loans are usually repaid through regular monthly payments. Think about how much you can afford to be without each month and don’t commit to larger repayments.
- The APRs advertised for each product: APR stands for Annual Percentage Rate. This is often advertised as ‘representative’ which means that only 51 per cent of borrowers need to be offered this rate for the lender to be able to promote that rate. Bear in mind, then, that you might be quoted a higher interest rate. For more information check out our article on loans and APR.
- The lender’s eligibility criteria: Check carefully whether you are eligible for a loan from a provider before applying, as your credit rating can be negatively impacted if you apply for loans and are turned down, or have multiple unnecessary searches.
- The charges and fees payable on the loans: Lenders will often charge early repayment fees and set-up charges for loans. Other charges and fees may also be payable, so check the terms and conditions carefully.
There’s no doubt that thoroughly researching personal loans can take time. It can be a frustrating process and you need to consider your options very carefully before you start to apply. For some, a broker could help do the legwork and may even enable them to find the perfect loan. However, most people will find all the tools and information they need at their fingertips to help them find the right loan for their circumstances.