1. What is the total amount the loan will cost me over its life?
Nearly everyone knows to check on the interest rate before committing to a loan to make sure you are getting a good deal. But did you know that it is just as important, and sometimes more important, to check the fees and charges that go along with the loan as well?
Thankfully there is a pretty easy way to work this out and it lets us compare “apples with apples”. Every loan has a ‘Comparison’ Interest Rate amount which you can have your Broker or Lender provide you when quoting, which is a gauge of exactly what the interest rate would be with all the lenders fees and charges included.
Picture this. Lender ‘A' advertises a 1% interest rate on a loan. Sounds great? Upon further inspection you see they charge $150 per month account keeping fee, and a $900 application Fee. You will find the Comparison rate for this loan on a $30000 borrow over 5 years would then be 13.13%. So what, the interest rate is only 1%? Rather than charging you interest to make a profit the Lender is charging fees that you may or may not take any notice of and impressing you with a fantastic interest rate. What you need to know is how much this loan will cost you in total to take out. Lender A’s Total Payable for this loan over the 5 years is $40488.73.
Another more fair and reputable financier, Lender ‘B' offers 9.99% for the very same loan amount, but only has a $5 monthly account keeping fee and $385.00 application fee. It may come as a surprise their comparison rate would only be 10.77%. Total payback for this loan (with an interest rate 8.9% higher than Lender ‘A’’s over the same 5 year term) is $38376.27 a massive saving of $2112.46!
On the surface you would automatically think 1% interest is a better deal than 9.99% right? But you need to look deeper and make sure all is as it seems. As Professional, honest Brokers, our service is to make sure we find you the best possible loan for your profile - not just the best possible interest rate. Working with us to make sure the loan we find you is the best loan for your overall needs is what we do best, and another great reason why we make loans easier!
2. What documents do you need me to provide you upfront?
Providing a Broker with as much information as possible upfront makes the process go quicker, and in some cases will assist in getting you a better deal. An experienced Broker can see little nuances in each situation that make a world of difference.
Something as simple as an ABN or Year To Date calculation missing on a payslip provided in the first meeting with us can mean the difference between one lender accepting them as income confirmation and another lender not. It helps more accurately quote based on your exact situation and what Lender will accept your profile. Another example - if you have recently moved jobs, the last payslip from the previous job can be of great help and make a loan application go a lot smoother. These are just two examples, your Broker will direct you as they go with specific requirements but there is no doubt having as much information and supporting documentation available for an experienced Broker will mean you get the best possible loan for your profile, not just the best possible loan for the information they were able to obtain. Here is a list of the things I believe are important upfront in every case to make sure all bases are covered :
- Your two most recent payslips (3 if you are Casually Employed).
- A Centrelink Income Statement (Dated within the last fortnight and only applicable if you receive Centrelink Benefits)
- A copy of your Drivers Licence and Medicare Card
- Two personal references (A relative and a friend not living with you)
There are occasions where we will need more supporting documents and your Broker can discuss this with you, but the documents above provided up front are a great start.
If your Broker is happy to proceed or advises they don’t need anything from you to get you the best deal, you need to ask yourself if they are really looking into your profile and making the best decisions for you?
3. How many Lenders will you be actually submitting my Application to?
I have written before in my Blog on the importance and devastation the number of ‘enquiries’ on your credit file can make to your ability to obtain credit. Put simply, in most instances an experienced and professional broker will only need to put your application to one lender, two at the most. A good broker will know exactly which lender each application “fits” and know the guides and regulations of each lender backwards so they don’t put an application to a Lender that would have never considered it.
When dealing with a qualified broker that values the importance of your credit file, they will talk with you during the application process and give you an indication of what lender they are considering is best. After researching and submitting they will also notify you in writing that they have submitted the loan, and then obviously again at the outcome of that application. You have the right to say no more applications are to be made if you believe they are just throwing the application at every lender on their panel in the hope that one might Approve it, in effect making a complete mess of your credit file and causing issues with your future accessibility to finance.
Some Brokers have the belief that best practice is to submit each application to 3 or 4 lenders to try and induce some sort of competitive dynamic. In my opinion, this is very poor handling of your application and will only ensure you get a far worse deal and potentially a decline. Be wary of any Broker suggesting this method of submission and ask yourself why they don’t know the guidelines well enough to pursue the best lender for your profile first time.
4. How many lenders do you have on your panel and are there any that are unique to you?
All Brokers are not equal. We are a service provider and in essence our role is to have access to, and an intimate knowledge of the best products on the market and in turn provide you easy access to those products.
Some Brokers have access to a limited amount of lenders and to compensate will try and make a customers profile fit those few lenders. This is obviously not the way to get the best deal for you. A good Broker has access to numerous Bank, Mainstream, Niche and Sub-Prime Lenders each with their own appetites and guidelines. It is important to deal with a Broker that has access to many different Lenders, and even more importantly many different types of Lenders. Every single person that applies for a loan has a unique and different profile - no two people are ever exactly the same. Having access to a large stable of Lenders ensures the loan you are getting has been compared to as many different options as possible and the product chosen is the best for you. Some Brokers even have unique access to boutique lenders that are fully licensed and looking to assist people just like you with your request. Big isn’t always better and certainly doesn’t always automatically mean the best deal or the best chance at an approval. Realistically the more licensed reputable Lenders a Broker has access to and a good relationship with the better deal you will get.
If your request is a little unusual or complex, ask the Broker if they have had experience in dealing with that sort of profile in the past and make a decision for yourself if they are the best fit for you. No Broker can be an expert at all types of loans - find someone who has the experience and knowledge to handle your request.
5. Is the quote you have given me limited to a certain time frame, or certain goods?
Once you have gotten a quote ensure it is tailored exactly to your profile and what you are looking to purchase, not just a generic quote for a product you would never be taking just to get you to keep talking with them.
The quote you can expect on a brand new $100k car would be completely different to one given on a 20 year old used private sale car. The reason for this is Complex and requires a another Blog to explain, but in short the Lenders risk is higher on an older vehicle if they were forced to recoup it to pay back the loan, and therefore the rates are far more competitive in the new car space. Some advertised interest rates you will see around the internet are for specific cars, specific ages of cars or cars that are worth more than a particular amount. It is also important to note some rates are ‘specials’ so find out how long the quote is good for. Read the disclosures, check the fine print. Being informed is important so you can make the best decision for you.
Most importantly follow your intuition. A Broker sells service. We are here to make the process easier, make sure you get the best deal for your requirements and take the stress out of getting a loan. If you are unhappy with the answers your Broker gives you to any of your questions above, or any other questions you have asked, shop around and find someone that fits your needs better and makes getting a loan cheaper and easier!