How to choose a personal loan broker

Finding a personal loan can take a lot of time and effort. A personal loan broker can cut the time you spend by adding in a middle man that can facilitate a loan for you. And if you don’t have the best credit or are facing a complicated situation, a loan broker may even be able to find you a loan you didn’t know you could qualify for. Keep reading to learn how to choose a personal loan broker in Canada.

How does a personal loan broker work?

Personal loan brokers work in a similar way to mortgage brokers: they help you find a good deal on a personal loan by connecting you to a direct lender that you qualify with. To do this, personal loan brokers have a network of lenders that have set eligibility criteria for potential borrowers.

If a personal loan broker in Canada is able to find a lender that might fit your needs, you’ll be presented with a preapproval offer. After this, you will likely have to finalize the offer with the lender directly, though some brokers are able to facilitate that portion of the process as well.

Why should I consider a personal loan broker in Canada?

Lender connection services offer convenience. Rather than filling out multiple applications for a variety of lenders, a personal loan broker only requires you to fill out one application. You’ll receive your offers through the broker, which can save you time.

It might be particularly useful if you have trouble meeting the standard eligibility criteria at larger financial institutions. This is because brokers tend to have a better understanding of the different lending requirements of various lenders, so they won’t recommend products that you are likely to be rejected for.

And to top it all off, using a personal loan broker in Canada is free. Instead of charging you, brokers receive a commission from the lender once you’re approved for a loan. You’ll save time without having to pay for the privilege of being connected to lenders.

How are personal loan brokers and direct lenders different?

How to find a good personal loan broker in Canada

• Loans offered. Most brokers only connect borrowers with unsecured personal loans. If you need a specific loan, check to make sure your broker has that type of lender in its network.
• Loan conditions. Every personal loan comes with certain conditions regarding early payments, late payments and loan terms. Check with your lender to make sure you agree to the borrowing conditions.
• Lender network. A larger network will increase the likelihood you’ll be connected with a lender that can finance your loan.
• Processing time. Brokers will need to underwrite your application before you can be connected with a lender. Usually this only takes a few minutes, but some with more strenuous eligibility criteria may take longer.
• Customer service. While you may not be working with your broker for the entire duration of your loan, you’ll want to be sure its customer service is top-notch just in case you have any questions or run into any problems.
• How they work. Some brokers operate almost entirely online, while others have bricks-and-mortar locations and use more traditional contact methods like phone, fax and mail.

What to avoid with personal loan brokers

• Small lender networks. The more lenders your broker has access to, the better your chance of getting the best loan available. Make sure your broker compares a large range of options, otherwise you might as well just do it yourself.
• Commissions. Most loan brokers run off of commissions, but you’ll still want to be sure how it affects the broker’s recommendations. Less honest brokers might push lenders that pay them higher rather than the ones that offer the best option for you.
• Fees and charges. There are multiple personal loan brokers that don’t charge a fee for a connection service. If you opt for one that does, ensure that all fees are clearly explained before you commit to your broker and your loan.
• Scams. Reputable personal loan brokers don’t charge a fee for you to apply. You should also be wary of other warning signs like an unsecure website or a company without a physical address.

Compare personal loan brokers now

Bottom line

A personal loan broker can be a handy tool when you’re ready to compare lenders but aren’t sure where to start. With many brokers offering a connection service online, you can apply from the comfort of your own home without having to visit website after website to check terms. However, you’ll still want to make sure your lender is legit before you agree to a loan.

And if you’d rather compare direct lenders, our guide to personal loans can help guide you through the comparison process.

Frequently asked questions about personal loan brokers

• Does it cost more to use a personal loan broker?

  No. Brokers make money through commissions, which are paid to them by the lenders they recommend. This is not directly added to the cost of your loan or interest rate. You’ll be responsible for any administrative, monthly or other applicable fees normally charged by the lender.

• Can I take out a loan from my current bank via a loan broker?

  Brokers offer products from lenders within their network — that is, lenders that they have a relationship with. If your current bank is within the broker’s lender network and it offers a competitive product, then yes, you might end up getting an offer from your current bank. Keep in mind your loan broker should be looking for the best value option for you, whether that is your bank or not.

• Can I stop using the broker’s services, or switch to another loan broker, once I have my loan?

  This will depend on the terms and conditions of your contract. Make sure you read and understand all of them before you sign the loan contract. You may need to cancel the loan and take out a new one if you wish to change brokers.