Whether you're buying your first home, upgrading the family car or looking for funding to grow your business, there's a good chance someone has suggested you "talk to a broker". But what is a finance broker, exactly, and how is one different from simply walking into your bank?

In this guide, we'll explain what a finance broker does, the types of loans they can help with, how they're paid, the rules that protect you, and the questions worth asking before you choose one. By the end, you'll have a clearer idea of whether working with a broker suits your situation.

What is a finance broker?

According to the Australian Government's Moneysmart website, a finance broker is a go-between who negotiates with banks and other credit providers to arrange loans on behalf of others.

In plain terms, a finance broker sits between you and the lenders. Rather than you approaching one bank at a time, a broker looks at your goals and finances, compares options from the lenders they work with, and helps you through the application. The lender still makes the final decision on whether to approve the loan, and the loan itself is with the lender, not the broker.

That last point matters: a finance broker is not a lender. Their role is to help you understand your options and manage the process.

What can a finance broker help with?

Depending on the broker and their lender panel (the group of lenders they're accredited with), a finance broker may be able to help you explore:

Home loans: buying your first home, upgrading, or purchasing an investment property.
Refinancing: reviewing your current home loan and comparing it with other options, including the costs of switching.
Car and vehicle finance: funding a personal car or a work vehicle.
Personal loans: for things like debt consolidation, renovations or other major expenses.
Business and commercial finance: such as loans to buy commercial property, equipment finance, low doc loans for self-employed borrowers, and development finance.

Not every broker offers every type of loan, so ask up front.

How a finance broker works: step by step

While every broker has their own process, it usually looks something like this:

Getting to know you. The broker asks about your goals, income, expenses, debts and the type of loan you're after.
Assessing your situation. They look at what lenders are likely to need from you and give you a sense of your borrowing options.
Comparing options. The broker reviews loans from the lenders on their panel and explains the differences, including rates, fees and features.
Recommending a loan. They explain why a particular loan may suit your needs and what it will cost you over time.
Managing the application. The broker helps you gather documents, submits the application and liaises with the lender.
Supporting you to settlement. They keep you updated until the loan is finalised.

How are finance brokers paid?

This is one of the most common questions people ask, and it's a good one. In most cases, lenders pay brokers a commission for distributing their products. Commissions are usually a percentage of the loan amount and can include an upfront payment and an ongoing payment for the life of the loan.

Some brokers also charge fees directly to their clients. If a broker does charge a fee, it should be clearly set out in a written quote, and you must sign the quote before the broker can provide the service. Brokers must also tell you about the commissions they may receive.

Because commissions can differ between lenders, it's reasonable to ask your broker how they're paid.

The rules that protect you

Licensing

In Australia, finance brokers must be licensed by ASIC or be an authorised representative of someone who is licensed. You can check this on ASIC's Professional Registers by searching the Credit Licensee or Credit Representative lists.

Best interests duty for home loans

When it comes to home loans, mortgage brokers have a legal duty to act in your best interests when suggesting a loan for you. In practice, a broker should be able to explain why the loan they recommend suits your needs, and show you more than one option.

Business loans can be different

Australia's consumer credit laws generally cover loans to individuals that are mainly for personal, domestic or household purposes, as well as loans to buy, renovate or improve residential investment property. Loans that are mainly for business purposes, or loans to companies, generally aren't regulated in the same way. If you're borrowing for your business, it's worth reading your loan documents carefully and getting accounting or legal advice where you need it.

If something goes wrong

If you have a complaint, start by talking to your broker and then put it in writing to their business. If it isn't resolved, you can contact the Australian Financial Complaints Authority (AFCA), which offers dispute resolution at no cost to consumers.

Benefits of using a finance broker, and what to weigh up

What a broker can offer:

One point of contact who compares options across several lenders, rather than you approaching each one yourself.
Help understanding fees, features and loan structures in plain English.
Support with paperwork and keeping the application moving.
Experience with different lenders' requirements, which can be useful if your situation is less straightforward, for example if you're self-employed.

What to keep in mind:

A broker can only recommend loans from the lenders on their panel, so ask which lenders they can and can't access.
Commissions and any fees should be disclosed. Make sure you understand them.
A broker can't promise approval or a particular rate. Every application is assessed by the lender against its own criteria.
You stay in control. You don't have to accept a recommendation, and you can ask for alternatives, including your own bank.

Questions to ask before choosing a finance broker

A good conversation with a broker should leave you feeling more informed, not pressured. These questions can help:

Are you licensed, or are you a credit representative of a licensee?
Which lenders do you work with, and which can't you access?
How are you paid, and does that change between lenders?
Why is this loan suitable for my situation?
What are all the fees and features, and how do they affect the total cost?
Is there a lower-cost option that could also work for me?

Frequently asked questions

Is a finance broker the same as a lender?

No. A finance broker arranges loans on your behalf, but the money comes from the lender, and the lender decides whether to approve your application.

Do I have to pay a finance broker?

Many brokers are paid by lender commissions, but some charge fees. Any fee should be set out in a written quote that you sign before the broker starts work.

Can a finance broker help with a business loan?

Many can. Just keep in mind that business-purpose lending is generally not regulated under consumer credit laws in the same way as personal or home lending, so read the terms carefully.

How do I check if a finance broker is licensed?

Search ASIC's Professional Registers for the broker's name or business under the Credit Licensee or Credit Representative lists.

If you'd like to talk through your goals and see what your options might look like, the team at TNL Finance is here to help. Get in touch for a relaxed, no-pressure chat about your situation.

What Is a Finance Broker? How They Work and When One Can Help