Banks vs Finance Brokers – What’s the Difference?

Banks are financial institutions that accept deposits and provide loans, while brokers are intermediaries who facilitate transactions between an entity seeking finance and finance providers. Banks typically also offer investment advice, loans, mortgages, insurance products, and more. Individuals and businesses can deal directly with a bank. 

Alternatively, people can engage a broker. A broker sit between their clients who are looking for commercial or business loans, and a range of providers, including banks. They research the needs and solutions for their clients, provide advice and facilitate the loan transaction. 

In recent years, lending in Australia has experienced tremendous growth as more and more individuals and businesses look to access the capital they need. Every borrower has their own set of needs, circumstances and choices which can either be facilitated by a broker or directly with a bank.

Banks are focused on their own loan products and although they may have some ability to negotiate loan terms, they tend to have clear criteria when it comes to approving loans. Although banks are becoming more accommodating to those with less traditional income streams, those with lower credit scores or unsteady incomes to secure a loan might face challenges.

Borrowers must now also factor in interest rate rises, fixed rate loans expiring and unstable equity positions. 

Loan processes can seem daunting, but this is where experienced brokers help people find borrowing options they may not have been aware of. 

Existing bank customers may be able to renegotiate the terms of their loans, particularly if the bank sees them as a valuable customer with a sound history of making repayments. Finance brokers, on the other hand, have access to multiple lenders – including banks. They can assess multiple loan options from various lenders, so clients can access a more suitable loan. With their knowledge of different lenders policies and products, brokers can also provide advice on which is suitable for a particular situation based on factors such as interest rate type, repayment terms, fees associated with each product and whether there are special promotions being offered by certain lenders at any given time. They may also be able to assist those who have more challenging circumstances in terms of their borrowing capacity. 

Brokers generally earn income through commissions which are paid by the lender, not by the client.  

Although interest and fees must be considerations for borrowers, other factors to consider include: 

Saving you time
Your personal circumstances are individual to you and finding the right loan for those circumstances can be time consuming. It can take hours of research to find out various loan rates, terms and conditions – not to mention deciphering financial language. A broker can save you this time.

Credit rating
For those who decide to DIY the loan process by applying for loans from multiple banks, they often don’t realise there may be an impact on their credit rating for each loan application they make. When multiple banks process a loan application, this starts to negatively affect a credit rating. A broker will generally discuss your requirements and make suitable recommendation. They will then complete the one application needed.

Knowledge of a wide range of borrowing options 
Banks are limited to offering products from their bank whereas brokers work with a range of lenders. Furthermore, with a broker you have a champion on your side who understands the loan process and can provide you with information you may not otherwise be aware of. 

An ongoing relationship 
Some borrowers have adequate relationships with their banks, particularly High Net Worth Individuals, but for the average person, having someone who can provide ongoing strategic loan advice is a valuable asset in the pursuit of financial goals. 

Not all brokers are the same; when looking for a broker, it’s important to understand their specific experience and capability to make sure it is in the area you need and your options are not restricted by their lender panel. Experienced, reputable brokers will likely have more options. At Finance Advisory Co, we have access to over 40 lenders, which provides our clients with far greater options than are available from dealing with one lender. 

For home loans, refinancing, commercial or business loans, contact the team at Finance Advisory Co

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