Holly Bennett
Sam Bromley
A credit broker introduces potential borrowers to lenders. You might be charged for this service, so you should be clear about fees before going ahead. It’s also worth understanding how the credit broker will use your personal information.
Thankfully, there are rules around fees and using your personal information that credit brokers must follow, which are set by the Financial Conduct Authority (FCA).
What does a credit broker do?
A credit broker can introduce borrowers to lenders, or sometimes other brokers, by offering a comparison of deals that match what the borrower is looking for, for example a loan specifically for bad credit.
The credit broker is usually either paid by the lender or charges you a fee for using its service.
You might come across a credit broker when searching online for a loan or you may be contacted by a credit broker over the phone, text or email, encouraging you to use its services.
Credit broker vs lender: what’s the difference?
Credit brokers are not the provider and don’t lend you money themselves. Instead, a credit broker acts as an intermediary, often searching a number of providers, comparing loans and introducing you to lenders and their products.
Lenders, on the other hand, provide the finances to you directly. You don’t have to use a credit broker to apply for a loan with a lender.
Using a credit broker might help you access more lenders and their products, and can save you time, but there is no guarantee that a credit broker will find you the best deal, and some may charge you fees. Credit brokers must state they are a credit broker when they communicate with you and be clear about any fees they charge.
Comparison sites are a type of credit broker, as they help you find and compare loans that might match your circumstances, but they don’t supply the loan. However, price comparison sites don’t typically charge borrowers a fee for using them but may get paid commission by the providers they advertise in their comparison tables.
Are credit brokers regulated?
Credit brokers are regulated by the FCA, which has guidelines that all credit brokers must follow. These were introduced in 2015 after concerns about borrowers being treated unfairly.
These rules include that a credit broker must:
- not charge fees, unless they give you clear details about fees as part of an ‘information notice’ and you confirm that you’re aware of the notice
- tell you its legal and trading names
- state clearly in its promotions that it’s a broker, not a lender
- not take a fee from you without your permission
- not share your personal information with other companies without your permission
- give you a refund if you change your mind and want to cancel within 14 days of signing the credit agreement, without a penalty
- give you a refund minus £5 of any broker fee if you don’t have a loan within six months, or make this refund even sooner once you contact them to say you don’t want to take out the loan
These rules don’t however apply to credit secured on a mortgage to buy land through a credit broker.
You can check if the FCA authorises a credit broker by searching the FCA’s Financial Services Register.
Credit broking fees and charges
Some credit brokers charge fees for using their services. This is sometimes even before you’ve agreed to a loan or received funds. Before a credit broker can charge you any fees it must explain these charges in writing, and you must accept and agree to its terms in writing.
The credit broker must also tell you:
- its legal name, as it appears on the FCA Register
- that it is a credit broker and not a lender
- what fees, if any, you will pay, and when and how you’ll pay them
Credit broking red flags
If the credit broker doesn’t follow FCA rules, it is banned from charging fees. It’s likely to be a scam if the credit broker:
- charges payment protection insurance or tax or asks you to pay a fee via a money transfer service or vouchers
- asks for advance fees before they will release the loan to you and you haven’t had any written notice or agreed to these charges
You can report attempted or suspected scams to the FCA or Action Fraud.
If a credit broker has broken FCA rules or has treated you unfairly, you can complain to the Financial Ombudsman Service. This includes if it has shared your information with other companies without your consent, or if other credit brokers have taken money from your account without your permission.
Where to get debt help
If you’re seeking a loan to help make ends meet, and are struggling with debt, it’s important to note that there are charities available that can give free debt help, such as:
- Citizens Advice
- StepChange
- National Debtline
Charities like this can help with things like budgeting and coming up with a plan to deal with your debt. They could also help you apply for debt respite schemes such as the ‘Breathing Space’ scheme in England and Wales and the Debt Arrangement scheme in Scotland. There isn’t currently an equivalent scheme in Northern Ireland.
Image source: Getty Images
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