Credit brokers explained

When you’re looking at car finance, you’ll probably come across the term ‘credit broker’.
Brokers help connect you with finance lenders and play an important role in helping buyers find good deals, so it really helps to understand what credit brokers do, how they operate, and what to watch for. Here, we cover it all for you.

A credit broker is a company that helps people find credit by comparing the market and introducing them to potential lenders.
Rather than providing the loan themselves, brokers help borrowers identify and compare offers from various lenders. Usually, brokers make their money by earning commission if you successfully take out finance with a lender they have introduced you to them. This should not affect the deal offered to you. Avoid any brokers that ask you for money up-front, as it’s an FCA regulation that a credit broker must give you a written notice setting out any details of fees. Brokers must clearly disclose that they are not direct lenders. If unsure, check their website or ask them. Legitimate credit brokers will explicitly state their role. If you are worried a broker is not legitimate, you can use the FCA register to check they are authorised here; https://register.fca.org.uk/s/ If you have a poor credit history, you may find speaking to a broker can give you an idea of which lenders are suited to your credit profile before applying.

Credit brokers typically do not charge fees to the consumer, and make their money by receiving commissions from lenders. However, some credit brokers may charge fees for their services. By law, brokers cannot take fees or payment details unless:
1. They provide a written information notice explaining their fees, 2. You explicitly agree to the terms in writing.

Credit brokers hold a few jobs when helping you finance a vehicle. These include:
• Comparing loan options: Credit brokers work with a panel of lenders, allowing them to compare multiple offers with a single application. This simplifies the process of comparing interest rates, loan terms, and repayment options. • Soft credit checks: Many brokers perform soft credit checks during the initial application, meaning your credit score won’t be affected until you proceed with a lender. • Referrals to direct lenders: Once you select an option, the broker refers you to a direct lender who completes the application process, including affordability and credit checks.

• Convenience: With access to multiple lenders, brokers can save time compared to applying individually to different lenders.
• Access to specialist lenders: For individuals with poor credit or unique financial circumstances, brokers may connect you with lenders specialising in non-standard auto loans.

• Additional fees: Some brokers may charge a referral or brokerage fee, which should be disclosed upfront.
• Personal data sharing: Your information may be shared with multiple lenders, potentially leading to unsolicited offers. • Longer process: Compared to directly approaching a lender, the involvement of a broker can sometimes add a step to the application process.

To help make sure you’re safe when using credit brokers for car financing:
• Only use FCA-authorised brokers. • Always request written details of any fees or charges. • Opt out of data sharing if possible and report any misuse. • Consider direct lenders alongside brokers to identify the best option.

Credit brokers in the UK must be authorised and regulated by the Financial Conduct Authority (FCA).
The FCA help ensure all credit brokers treat their customers fairly and that communications are clear and upfront. You can check whether a broker is regulated by the FCA by searching for their name on the Financial Services Register. Avoid any brokers flagged as problematic on the FCA’s "credit brokers to avoid" list.

A credit broker can help you navigate multiple finance lenders and find a deal that suits your budget and circumstances, though you should always do your own research and make sure you know what you’re signing up for.
For free, impartial financial advice visit Citizen’s Advice and MoneyHelper. For more guides on car finance and the latest deals, visit Auto Trader’s finance hub.