What does a car finance broker actually do? (And why it matters)

When you apply for car finance, you've got options. You can apply directly for credit to banks and car dealerships, or you can go through a car finance broker.

A car finance broker is a go-between. It acts as an intermediary between you, the borrower, and a wide panel of lenders. This helps you secure the best finance deal for your specific circumstances.

There are two main reasons why people work with car finance brokers rather than interacting directly with lenders. The first relates to the number of options you have. The second relates to your credit report.

If you go directly to a lender, you go directly to a single lender. A car finance broker, by contrast, puts you in touch with a wider range of possible lenders. This helps you weigh up your options and choose the best deal for you – all without lifting a finger or spending a penny.

And when a car finance broker searches for possible lenders, it carries out soft searches, not hard searches. This means it doesn't leave a mark on your credit report and is invisible to lenders. Applying directly to a bank or car dealership, meanwhile, counts as a hard search.

But there's another, equally compelling reason why car finance brokers are worth working with. This is that some, like us, put drivers in touch with lenders that specialise in bad credit.

Mainstream lenders, you see, will usually turn an unfavourable eye to people with patchy credit histories. Here at Zoomo, however, we're committed to providing finance to people regardless of their financial past.

What are a car finance broker's responsibilities?

Car dealerships will often work with just one lender. A car finance broker, by contrast, widens the net and has access to many lenders.

This is useful for a couple of reasons:

It helps put you in touch with lower interest rates (APRs) and more favourable terms.
It can help put you in touch with lenders who specialise in bad credit or high-value vehicles, depending on your specific requirements.

The car finance broker will handle the applications for you, including paperwork and communication with lenders and dealers. This massively reduces the hassle involved in applying for car finance.

Some car finance brokers will offer personalised advice, explaining your options to you and guiding you through the process.

The final responsibility of a car finance broker is to carry out soft searches to check your eligibility. This helps you explore your options without leaving any marks on your credit report.

What are the benefits of using a car finance broker?

Why should you use a car finance broker rather than applying for credit directly? Here are five key reasons.

1. Access

Car finance brokers have access to more lenders than you do. This means they can hook you up with the best deal for you and your financial circumstances.

2. Specialisms

Different car finance brokers will have different specialisms. One might specialise in vintage cars, while another specialises in securing car finance for people with bad credit histories. This means they have access to lenders that may not be immediately obvious to you or hard to find.

3. Labour-saving

Are you short on time or energy? A car finance broker can significantly reduce the administrative burden of applying for car finance from a bank or car dealership. It takes care of the application process so you don't have to.

4. Soft searches

Applying for car finance directly from a bank or car dealership is a hard search that's recorded on your credit report. This can make you less eligible for loans in the future.

Working with a car finance broker, by contrast, is recorded as a soft search. This means you can secure car finance with no negative impact on your credit score.

5. Cost

Most car finance brokers, including us, don't charge a direct fee for their services. This means you're getting a great service free of charge.

How do car finance brokers make money?

So, if car finance brokers don't charge you, how do they make their money? The answer is commission.

Their job is to introduce you to the lender. If the lender goes ahead and lends you the money, the car finance broker will be paid commission.

Some, but not many, car finance brokers charge you an admin fee. If this happens, you should be told at the start of the process. At Zoomo, we don't charge our customers anything.

How do you know if a car finance broker is legitimate?

The car finance market is crowded. So, how do you know if a car finance broker is legitimate?

Here are some ways to find out – and some red flags to keep an eye on.

Car finance brokers are regulated by the Financial Conduct Authority (FCA). If you're not sure of a firm's legitimacy, try the FCA Firm Checker tool. This will tell you if the firm has been authorised.

Scammers like to set up clone firms with a real company name but false contact details. It's easy to check if a firm is doing this. Simply compare the phone number and address on the FCA register to those the broker is using.

You should also ask yourself the following questions:

Have they asked for upfront fees?
Are they pressuring me into making a payment soon?
Are they asking for payment by bank transfer or cryptocurrency?
Do they only operate online?
Are their rates too good to be true?

If the answer to any of these questions is "yes", look elsewhere.

Are you looking for bad credit car finance in Newcastle upon Tyne? At Zoomo, we have a 96% acceptance rate – one of the best in the business. It only takes a few minutes to apply for finance online.

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