What a Car Finance Broker Does and How They're Paid
What a car finance broker does, how brokers are paid in Australia, the documents they must give you, and the questions to ask before you go ahead.
The short answer
A car finance broker compares loans from a panel of lenders, helps you choose one that suits your situation, and manages the application through to settlement. Brokers are paid by the lender, by you, or both, and in Australia they must tell you how they are paid before they help you apply.
A broker does not lend you money. Your loan contract is with the lender.
What a broker does
- Understands what you need: the car, the amount, your budget and your preferred term.
- Checks your situation against the policies of lenders on their panel, including credit history, income and the car's age.
- Explains the options, including rates, fees and the total cost, so you can compare them.
- Prepares and submits the application, and follows it up with the lender.
- Coordinates settlement with the dealer or private seller.
Because brokers deal with many lenders, they know which ones accept private sales, older cars, casual employment or past credit problems. That can save you making several applications yourself, each of which would be recorded on your credit file.
How brokers are paid
Brokers are usually paid in one or both of these ways:
- Commission from the lender, paid when the loan settles. You do not pay it directly.
- A fee paid by you, sometimes called a broker fee or origination fee. It is often added to the loan.
At Flash Funding, the lender pays us a commission, and we may charge an origination fee. Our origination fee depends on the lender and the amount borrowed, is never more than $2,500 or 10% of the amount financed (whichever is lower), and is only payable if your loan goes ahead. Our Disclosure page explains this in full.
Since 2018, lenders have not been allowed to pay "flex commissions" on consumer car loans, where the dealer or broker could increase your interest rate to earn more commission.
Documents a broker must give you
Credit brokers are regulated under the National Consumer Credit Protection Act. They must hold an Australian Credit Licence or act as a credit representative of a licensee, and give you key documents:
- A credit guide before helping you, with their licence details, the lenders they use most, how they are paid, and how to complain.
- A quote, before helping you, for any fee you will pay them.
- A credit proposal disclosure document when they suggest a loan or help you apply, setting out the fees and the commission they will receive.
They must also assess whether the loan is not unsuitable for you, based on reasonable inquiries about your needs and your financial situation.
Flash Funding Group Pty Ltd is an Authorised Credit Representative (578970) of AFAS Group Pty Ltd, Australian Credit Licence 414426.
Questions to ask any broker
- Which lenders do you work with, and will you compare more than one for me?
- What fee will I pay you, and what commission will the lender pay you?
- What is the comparison rate, and what is the total I will repay including all fees?
- Is there an early payout fee if I want to repay the loan sooner?
- Will you do a credit check, and will it affect my credit score?
A good broker answers these plainly and puts the answers in writing.
Frequently asked questions
Is it cheaper to use a car finance broker?
Not always, but a broker can compare more lenders than you could easily approach yourself. Compare the total cost, including any broker fee, against other options before you decide.
Do I have to pay a broker?
It depends on the broker. Many are paid mainly by lender commission, and some also charge a fee. Any fee must be set out in a quote before the broker helps you.
Does a broker check my credit?
Usually, to work out which lenders suit you. At Flash Funding we start with a soft check, which does not affect your credit score. The lender runs a full credit check when you apply.
Can a broker help with bad credit?
Yes. Brokers often know which lenders consider past defaults, which can save you being declined by lenders that would not accept your application.
Sources
This guide is general information only. It does not take into account your objectives, financial situation or needs, and it is not credit, tax or legal advice. Tax and GST outcomes depend on your circumstances, so confirm them with your accountant. All finance is subject to lender approval, terms and conditions, and fees and charges apply.
Related reading
Related service: Car loans
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