What is a Credit Broker?
You might have come across a credit broker while searching for a loan, perhaps without realising it. Here’s how credit brokers introduce potential borrowers to lenders, the fees they can charge and the rules they must follow.
Credit brokers offer a service to help you find lenders and to match you with loans you could then apply for. Before using one, be clear about any fees they charge and how they treat your personal information. It’s also worth knowing the rules they must follow and how to check whether they are authorised by the Financial Conduct Authority (FCA).
What does a credit broker do?
A credit broker introduces people to finance or credit from lenders, or sometimes other brokers. It does this by offering a comparison of deals that match the borrower’s requirements, such as loans for bad credit.
The credit broker is usually either paid by the lender or charges you a fee for using its service.
You might find credit brokers when you’re searching online for a loan, or you may have been approached by a credit broker by phone, text or email, encouraging you to use its services.
Credit brokers vs lenders
Credit brokers are not the provider and don't lend you money. They might search a number of providers, compare loans and introduce you to the lender, but they are not the lender, they’re a type of intermediary, introducing you to lenders and their products.
Lenders, on the other hand, provide the finances to you directly, and you can apply for a loan with a lender without using a credit broker.
Using a credit broker might help you access more lenders, offer choice and save you time, but there is no guarantee that it 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 and get paid commission by the providers they advertise in their comparison tables.
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Are credit brokers regulated?
Credit broking is regulated by the Financial Conduct Authority (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:
- be clear about fees and how it uses your personal information
- 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 broker fees and charges
Some credit brokers, such as those who introduce consumers to payday loans, 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 broker 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. The same goes for credit brokers that ask for advance fees before they will release the loan to you. 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.
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Holly champions clear, jargon-free writing. She’s been creating finance content for leading organisations for over 10 years. Read more