Factsheet: Using a broker
ONLINE TEXT VERSION - August 2011
With so many different credit providers to
choose from, you may decide to get a finance or mortgage broker to
do the legwork for you.
Brokers can help you find out about suitable loans or credit
packages and arrange special deals. As with any adviser, though, it
is wise to shop around yourself so you know what questions to ask.
Check with ASIC that your broker is licensed to engage in credit
activities or is an authorised credit representative of someone who
Take the time to understand their fee structure, and make sure
that your broker finds you a suitable and competitive loan - or you
could end up paying more than you need to.
David and Carole didn't check the fine print before
David and Carole were delighted with their new home. But four
years after buying it, David was made redundant. They began to fall
behind in their repayments and worried that their credit provider
would sell their home to repay the loan. They approached a broker
who advertised that he could help people in arrears on their loans.
By the time he had refinanced their loan, they were over three
months and more than $5,000 overdue on repayments.
The broker and the new credit provider charged them over $30,000
in fees and costs to refinance. David and Carole soon discovered
that they were paying a higher interest rate on the new loan (9.95%
instead of 7.0%) and that the repayments were $500 a month higher
than on their previous loan. Within 12 months of refinancing, they
had to sell their home.
Because of the refinancing, they owned even less of their home
than before. Altogether, they ended up over $90,000 worse off after
How do brokers work?
- Finance or mortgage brokers are go-betweens who arrange loans.
A finance broker negotiates with banks, credit
unions and other credit providers on your behalf to arrange loans,
and a mortgage broker specialises in home
- A broker's fee or commission for arranging a
loan is often paid by the credit provider whose products they sell.
Different credit providers pay different commission levels, so this
has the potential to influence a broker's recommendation of a
particular loan product. Sometimes a broker will charge the
customer a fee directly (instead of, or in addition to, the credit
- Make sure you understand the fee structure for
this brokerage service and compare fees charged by different
- Finance or mortgage brokers can help you select a loan and
manage the process through to settlement. But they may be limited
to a particular range of products that might not suit your needs or
give you the best value for your money. For example, if a credit
provider doesn't pay your broker commissions, their loans might not
be included on the list of products that the broker uses. So you
may be able to get a better deal by shopping
TIP: What you should know before you see a broker
- Brokers are not financial advisers and are not obliged to find
you the best possible deal unless they specifically agree to do so.
So ask your broker exactly what loans or credit products they
offer, and be prepared to ask questions about
other home loans or credit packages on the market.
- Make sure you're comfortable with the commission and any
benefits the broker may receive for recommending a loan product to
- Make a list of loan features you are
interested in (for example, if you're looking for a home loan you
may want the ability to make extra payments) and ask your broker
whether it will cost more to have these features.
- Avoid being pushed into signing a business purpose
declaration - do not sign a business purpose
declaration if the loan is for a personal or domestic purpose,
including the purchase of residential
property. By signing a business purpose
declaration, you may lose valuable rights under the credit
Six steps to smarter borrowing
Work out if you can afford to borrow
- Before you borrow, use our budget planner to see
exactly where you are spending your money and how much you can
afford in repayments.
- Save up as much as you can, so you can borrow less and save on
- Remember to allow for interest rate rises and anything that
might affect your future income (such as changing jobs).
- Make a list of loan features you are
interested in and be prepared to ask questions about whether it
will cost more to have these features.
Shop around for the best deal
- Think about whether you need a broker. Some of the best deals
on the market are available directly from credit providers.
- Look at other loans online or call other brokers to check what
they charge and what they offer. Reputable brokers will want to
make sure you get the best deal for your needs. Clarify whether you
need to pay anything for a first appointment to talk about your
options. If not, talk to a few different brokers before making up
your mind who is best placed to assist you.
- Check if the broker charges fees or is
paid a commission by the credit provider. Ask
whether you will have to pay anything to the broker if you decide
not to proceed with the loan.
- If you are refinancing, take time to compare interest rates,
product features, and fees and charges, and how these stack up
against your existing loan. Even a small difference in the interest
rate can make a big difference to what you have to pay. You also
need to factor in the costs of refinancing. Check if there are any
fees that need to be paid to exit your existing loan, in addition
to the costs of establishing the new loan and any fee charged by
- Shop around online to compare products or use our multi-loan
- Research published by the independent consumer group CHOICE can
also help you find the right product for your needs and budget -
Know who and what you're dealing with
- Anyone who wants to engage in credit activities
(including brokers) must be licensed with ASIC
or be an authorised representative of someone who is
licensed. If they aren't, they are operating illegally.
- There is currently an exemption from licensing for credit
assistance provided through some businesses (for example,
retail stores and car yards). While the store may be exempt, the
actual credit provider must still be licensed. If you are unsure
who the credit provider is, ask the person you are dealing with to
point out the name in your credit contract.
- To find out if a credit provider is licensed or call ASIC's Infoline on 1300 300
- Anyone engaging in credit activities (for example, by providing
credit or assistance to you) must give you either a credit
guide (with information such as their licence number, fees
and details of your right to complain) or a written notice with
details of your right to complain about their activities.
- Make sure you get a written agreement that
states the type of loan being arranged for you, the amount, the
term of the loan, the current interest rate, the repayments at the
current rate, and any fees you have to pay.
- Never sign blank forms or leave details for
the broker to fill in later.
- If you need the money by a certain date, ask the broker how
realistic this is. If it's not, work out a plan for how to manage
this. If the broker agrees to secure funds by a certain date, make
sure you have this in writing. If you feel like you're being
pressured into signing something you're not sure about, take more
time to think things through. See our tips for resisting
Keep up with your repayments
- Keep your repayments up-to-date to avoid having to pay any
- Make extra payments when you can, to save on interest.
- Check for fees or charges if you're thinking of transferring
Get help if you can't pay your debts
- Act quickly if you're having trouble making
repayments. It may be difficult to face the problem, but ignoring
it will only make things worse.
- If you can't make the full repayment, pay what you can. Contact
your credit provider without delay.
- If you are experiencing financial difficulties, you have the
right to apply to the credit provider for a hardship
variation. If the credit provider refuses, you can
complain to its independent dispute resolution scheme for a
variation on the grounds of hardship (see step 6 below).
- There are places you can go for help - visit www.moneysmart.gov.au for sample letters and
information about support services such as financial counselling
and legal assistance, call the National Debt Helpline on 1800 007
007 or call ASIC's Infoline on 1300 300 630.
- See our factsheet Can't pay your
Complain if things go wrong
- Try to resolve your problem with your credit provider
- If you aren't satisfied, take your complaint to your provider's
independent dispute resolution scheme. This will be either the
Financial Ombudsman Service (FOS) at www.fos.org.au or the Credit and
Investments Ombudsman (CIO) at www.cio.org.au. Both schemes can be reached
by calling 1800 367 287.
- If you think that a credit provider has acted unlawfully or in
a misleading way, you can complain to ASIC online at
www.asic.gov.au or call ASIC's Infoline on 1300 300 630.
ASIC Infoline: 1300 300 630
Disclaimer: Please note that this is a summary
giving you basic information about a particular topic. It does not
cover the whole of the relevant law regarding that topic, and it is
not a substitute for professional advice.
© Australian Securities and Investments Commission 2011
Last updated: 14 Mar 2018