What exactly is a broker?
A broker is basically someone who acts as a middleman connecting the dots between lenders and borrowers. They don’t actually lend the money, though, their job is to put together loan packages for clients and handle the day-to-day management of those packages. They play a big part, especially in the specialist finance sector, where bridging loan brokers like KIS Finance have an independent status that lets them tap into loads of different lenders and funding sources. This independence helps them match borrowers up with the right loan.
A broker’s job is to simplify the whole ordeal by figuring out the borrower’s situation, collecting any required documents, and hunting down some loan options that match their profile.
Understand who actually supplies the cash
At the end of the day, the lender is the one providing the funds to the borrower. That might be a bank, a building society, a credit union or private finance company, or any other number of places that lend money. Borrowers pay back the lender on the terms they agreed to.
Lenders are responsible for the financing: they’re the ones who come up with the loan, process it, and sort out the funding. They also look at the borrower’s finances and risk, to decide on the loan amount and interest rate, and manage the loan throughout its life cycle, from getting approval to collecting repayments.
How does the difference impact your choices?
The main difference is that a broker is out scouring the market for the best deals, whereas a lender only has its own products to offer. Because a broker has access to loads of different lenders and types of loan, they can compare all the options and help you find the one that suits you best.
If you go directly to a lender, you’re limited to their specific products and terms. That means you might end up missing out on better deals elsewhere, just because you don’t know about them. For example, if you apply through one big bank, you’ll only see what they’re offering, even if there are better deals elsewhere.
The broker process
Working with a broker is a lot less hassle than doing it all yourself. Instead of ringing round loads of lenders and comparing their offers, the broker does all that for you. First they’ll chat through your goals and go over your finances. Then they’ll do some research and find lenders that fit the bill on rates, terms and all that other stuff.
Once they find a suitable loan, the broker sorts out the application paperwork and talks directly to the lender, so you don’t have to lift a finger. It makes the whole thing a lot smoother.
Control and underwriting
Where a lender goes direct, you just have a one-stop shop: they look after everything from processing the loan to deciding whether you’re good enough to actually get the cash. That means they get to keep full control of things.
But a broker doesn’t have that level of control, once they send off your application, they have a bit less say in what happens next.
To get the loan, the lender will check your credit history, see what you owe already and your repayment history. They will also take a look at your debt-to-income ratio to decide if they think you can actually afford to pay the loan back.
Can a broker offer better deals than a direct lender?
Often yes. Brokers may have access to exclusive rates and offers not available directly from lenders. Because they are not tied to one provider, they can assess your situation as a whole and recommend the most suitable options. This can help people who have been rejected elsewhere find funding.
A broker can sometimes help you secure a lower interest rate or product fee. Even small differences in percentage points can lead to major savings over the life of a mortgage.
However, direct lenders may offer special deals or discounts to attract long-term customers. Banks sometimes reward clients who open other accounts or services with them, which brokers cannot offer.
Fees: broker commission versus lender interest
Using a broker usually involves a fee, which can vary. Some brokers charge a percentage of the loan amount, while others have a fixed rate. You should always ask about fees upfront.
Lenders are paid through interest and origination fees charged to the borrower. If you bypass a broker, you avoid their fees, which may reduce costs. However, some brokers, such as KIS Finance, offer bridging loans without broker fees. In many cases, the lender pays the broker a commission from their own origination fee.
Why use a broker if they charge a fee?
Many borrowers choose brokers for their expertise, higher approval chances, and time savings. Brokers are especially helpful for borrowers who have difficulty getting approved directly.
Benefits of using a broker:
- Access to more products: Brokers work with multiple lenders, comparing options to find the best offer for your situation.
- Higher approval chances: They know which lenders are most likely to approve your application.
- Expert advice: Brokers understand the market and provide impartial guidance.
- Less effort: They handle paperwork and communication, saving you time.
The direct lender advantage
If you already meet a lender’s criteria, going directly to them can be faster and cheaper. You avoid broker fees and may benefit from existing relationships with the lender, which can help you get better rates or lower closing costs.
Another advantage is that direct lenders often service their own loans. This means you continue dealing with the same institution after the loan closes. Brokers, by contrast, typically sell loans to other investors, which can make it harder to know who manages your payments later.
What are the risks of bypassing a broker?
Bypassing a broker limits your access to the broader market, increases rejection risk, and may hurt your credit score if you apply to multiple lenders unsuccessfully.
Main risks include:
- Strict criteria: You must meet all lender requirements, and rejection is more likely.
- Credit score impact: Multiple hard inquiries can lower your score.
- Missed deals: Some lenders work exclusively through brokers.
- Complex cases: If your situation is non-standard, applying alone can be difficult.
Making the right choice
Deciding whether to use a broker or go directly to a lender depends on your financial position and credit history.
If you have a strong credit score and a straightforward application, a direct lender may be the quicker and cheaper option. Established relationships with lenders can also help secure better terms.
If you have complex circumstances, need tailored support, or want to compare more options, a broker may be the smarter choice. They guide you through the process, explain your options clearly, and increase your chances of approval.
Regardless of which route you take, thorough research always pays off.
FAQ
1. Does a broker lend me the money?
No. A broker connects you with a lender who provides the funds.
2. Is it always cheaper to go directly to a lender?
Not always. Direct applications can save broker fees, but you might miss better rates available through brokers.
3. How does a broker get paid if they do not lend money?
Usually through a fee or commission, often paid by the lender. Sometimes the borrower pays directly.
4. What happens after my loan is approved?
Direct lenders often service the loan themselves. Brokers usually sell the loan to another institution that takes over servicing.
5. What is in-house underwriting?
It means the lender performs all approval steps internally. This gives them full control and allows faster decisions.