Finance broker: what they do, how they are paid and how to choose one

What does a finance broker do?

A finance broker finds, compares and arranges loans for you from a panel of lenders. They take a brief on what you need and what you can afford, work out which lenders' policies fit, recommend a loan, prepare the application and manage it through to settlement. The difference from going to a lender is choice: a bank can offer only its own loans, while a broker's panel can include banks, credit unions and non-bank lenders.

Most finance brokers specialise, and what they do varies by the kind of loan.

Home loans

A broker who arranges home loans is a mortgage broker. They must be licensed, hold at least a Certificate IV in Finance and Mortgage Broking under ASIC's rules, and act in your best interests. The mortgage broker guide covers what they do and what they cost, and the city guides add each state's concessions and grants.

Car loans

A car finance broker compares secured and unsecured car loans from banks and specialist lenders, including loans with a balloon payment. A car loan for personal use is consumer credit, so the broker needs a credit licence or must be a credit representative. See what a car loan broker does.

Personal loans

A personal loan broker compares unsecured and secured personal loans, including debt consolidation loans, under the same consumer credit rules as a car loan. See personal loan brokers.

Business loans

A business or commercial finance broker compares term loans, lines of credit, invoice finance and commercial property loans. ASIC treats a loan that is not predominantly for personal, domestic or household purposes as outside the National Credit Act, so a business loan carries no responsible lending obligations or best interests duty and the broker's fees are not regulated. See business loan brokers.

Equipment and asset finance

An asset finance broker arranges chattel mortgages, finance leases and hire purchase for vehicles, machinery and equipment used in a business. Like business loans, this is usually business-purpose credit. See equipment finance brokers.

Which rules apply to which loan?

The protections depend on what the loan is for, not on what the broker calls themselves. This is how the National Credit Act and ASIC's guidance split it:

Sources: ASIC, Does the credit legislation apply?; ASIC Regulatory Guide 206 (training) and Regulatory Guide 273 (the best interests duty applies to a mortgage broker's credit assistance, including on products other than home loans).

How are finance brokers paid?

Mostly by the lender. On a home loan the MFAA's remuneration factsheet puts upfront commission at generally 0.65% to 0.70% of the amount drawn and trail at about 0.15% a year, paid by the lender out of its own margin; the how mortgage brokers get paid guide shows what each major lender pays. Commercial lending varies more: one published aggregator policy lists commercial commission from 0.55% up to 2.00% at some specialist lenders.

Do you pay a finance broker?

Usually not directly. For a consumer loan, a broker who wants to charge you a fee must give you a quote, and you must sign and date it before they provide credit assistance (ASIC). Business finance has no such rule, so ask for any fee in writing before you engage a business or equipment finance broker. Moneysmart's advice if you are unsure whether a fee is fair is to check what other brokers charge for similar work.

Do finance brokers make a lot of money?

It depends on volume. On the MFAA's worked example, a $700,000 home loan earns the broking business $4,550 upfront and about $1,050 in trail in the first year. The MFAA stresses that this is business revenue: aggregator fees, staff, rent, ASIC and AFCA levies, insurance and software come out of it before the broker is paid, and the lender claws back the upfront commission if the loan is repaid within the first year or two.

How your enquiry through this site is paid for

Your Finance Guide is free to use. Licensed brokers who meet our criteria pay Your Finance Guide a partnership fee to receive enquiries from this site. The fee is paid by the broker, not by you, and is not added to your loan. Brokers are usually also paid a commission by the lender when a loan settles. Full details are in our Credit Guide. Read our credit guide.

Finance broker vs bank

A bank offers only its own loans, assessed under one credit policy. A broker compares a panel, and a mortgage broker owes you a best interests duty that bank staff do not. The lender pays the broker from its own margin, and the ACCC's home loan price inquiry found broker customers generally receive equal or better pricing than customers who go direct. Going direct can still make sense when your own bank will match the best offer for a simple loan, or when the loan you want is only sold direct. The mortgage broker vs bank guide sets the two routes side by side.

How to choose a finance broker

Check the licence or credit representative number

For any consumer loan, the broker must hold an Australian Credit Licence or be a credit representative of a licensee. Search their name or number in the Credit Licensee or Credit Representative list on ASIC's professional registers. A broker who arranges only business finance may not appear there, so ask how they are regulated and which industry body they belong to.

Ask for the credit guide, and a quote before any fee

A credit guide tells you who the broker is, which lenders they deal with, how they are paid and how to complain, and on a consumer loan it should reach you before they start work. If they intend to charge you a fee, the quote comes first and you sign it.

Ask which lenders they use and how they are paid

Moneysmart's questions work for any loan: What sort of lenders do you work with, and which can you not access? How do you get paid for this, and does it differ between lenders? Why is this loan in my best interests, and can you show me a couple more options, including the lowest-cost one?

Check membership and experience

Membership of the MFAA or FBAA adds the association's conduct standards and training requirements. Then ask how many loans like yours the broker has arranged: a broker who mostly writes home loans may not be the best choice for a truck or a line of credit, and the reverse.

Know where to complain

Raise a problem with the broker's business in writing first. If it is not resolved, the Australian Financial Complaints Authority offers free, independent dispute resolution (Moneysmart).

What qualifications does a finance broker need in Australia?

To arrange home loans, at least a Certificate IV in Finance and Mortgage Broking and 20 hours of professional development a year, which ASIC's Regulatory Guide 206 requires of anyone arranging home loans from other lenders. The MFAA sets a higher bar for its members, the Diploma of Finance and Mortgage Broking Management or completing it within 12 months of joining, while the FBAA's minimum is the Certificate IV. ASIC sets no specific qualification for brokers who arrange only other consumer credit such as car loans, leaving training to the licensee, and a broker working only in business finance does not need a credit licence for that work.

Is a broker better than a financial adviser?

They do different jobs. A finance broker arranges credit under a credit licence; a financial adviser gives personal advice on investments, super and insurance and is listed on Moneysmart's financial advisers register. ASIC's guidance is that a financial adviser who suggests a specific loan from a specific lender needs a credit licence too, so for choosing and arranging a loan you want a broker, and for what to do with your money you want an adviser.

Looking for a finance broker in your city?

Brokers work by phone, email and video, so a broker's location matters less than their licence, their panel and their experience with your kind of loan. For a home loan, the city guides cover each state's stamp duty concessions, grants and the 5% Deposit Scheme cap:

• Mortgage broker Sydney
• Mortgage broker Melbourne
• Mortgage broker Brisbane
• Mortgage broker Perth
• Mortgage broker Adelaide
• Mortgage broker Canberra
• Mortgage broker Hobart
• Mortgage broker Darwin