There are now more options than ever before to get a loan. Whether you are looking for a loan for a big life event such as funding your university education or renovating your first home, or even just a small personal loan for day-to-day expenses, finding the right loan for you can be a daunting process given the plethora of providers available on the market these days.
This article will analyse the value of loan brokers and how they compare to banks when it comes to getting a loan so that you have a better idea of your options before you go out loan shopping.
What Is A Loan Broker?
A loan broker acts as an intermediary between a lender and a borrower. Banks and other financial institutions are able to directly provide loans to borrowers.
However, as the lending space has become more saturated, loan brokers have become more popular. They essentially provide a service where they matchmake borrowers with lenders whose interest rates and repayment requirements best fit their needs.
Loan brokers do not lend out their own funds. They present the borrower with a variety of options from different partnered lenders to help the borrower make an informed decision. The loan broker then earns a service fee when a borrower takes up a loan through their platform.
An example of a notable loan broker in Singapore is Lendela. Established in 2018, its aim was to make getting a loan as seamless as possible for borrowers by incorporating Nordic-inspired user experience and financial technology to help Singaporeans better compare loans across different banks and financial institutions before applying for the best one, all on the same platform.
Side-by-Side: Loan Brokers Vs Banks
|Greater convenience when shopping around for rates, less research required to find best rates across different banks and financial institutions||More in-depth product knowledge of their loan products; better knowledge of best rates and ongoing bank promotions|
|Lower monthly income requirements||Quicker customer support|
|Good rates due to business relationship with lenders||Better refinancing options|
Pros and Cons of Using a Loan Broker
Loan brokers can provide a valuable service to those looking for a loan.
They work with a variety of lenders, which gives them an overview of the best loan terms across different banks and financial institutions. This cuts down the amount of research that you as a borrower have to do compared to if you were to go to different banks and financial institutions individually. Loan brokers are also not biased towards you taking up a loan from a specific lender. Hence, their loan specialists are able to give you objective advice on what loans are appropriate for you.
Pro: Less Stringent Income Requirements
Oftentimes, loan brokers will have lower income requirements as compared to banks. For example, Lendela has a minimum income requirement of S$1,200 for their personal loans. In comparison, DBS requires a minimum annual income of S$20,000, which translates to a monthly income of about S$1,666. If you are a lower-income earner in need of a personal loan, it could be easier for you to get one from a loan broker such as Lendela than directly from a bank.
Pro: Additional Savings
The business relationship between loan brokers and lenders allows them to have greater negotiating power. Loan brokers may be able to negotiate a good deal with lenders and secure preferential interest rates on your behalf.
This all comes at no additional cost to the borrower. Loan brokers typically do not charge borrowers any fees and instead earn a commission or service fee from the lender when a borrower takes up a loan through them.
Con: Limited to Existing Partners
While loan brokers work with many well-established partners, there may be some banks and financial institutions that choose not to work with loan brokers. By only relying on a loan broker to do the research and comparison of available loans for you, you could potentially be missing out on other loans that could offer more favourable terms.
Con: Refinancing a Loan
Loan brokers might not be as ideal if you are looking to refinance your loan. Loan brokers earn when you sign a new loan with a new partner, and not when you refinance an existing one. Hence, they might push you into refinancing your loans with a new loan provider instead of your existing lender, even if the interest rates or repayment terms are not the most advantageous to you.
Pros and Cons of Using a Bank
That being said, traditional banks should not be discounted in your search for a loan provider.
Pro: Better Product Knowledge
As banks only sell their own loans, they would be more well-versed in their own products. This means that banks will have better knowledge of their promotions or any non-advertised preferential rates for their loans.
Pro: Faster Customer Support
Banks would also be able to provide quicker customer support as you directly liaise with the bank on your application process.
Loan brokers put in a loan application on your behalf with the bank and do not have any direct influence on the processing of your application. If, for example, you are required to provide any extra documents for your application, a bank would be able to reach out to you directly instead of having to go through the intermediary.
Pro: Easier Refinancing Options
It is easier and quicker to refinance an existing loan through a bank than through a loan broker. You may even be eligible for preferential refinancing rates that are not publicly advertised as an incentive for sticking to your current bank. This is particularly important if you plan to refinance a larger loan like your mortgage loan in the future.
Read Also: Best Home Mortgage Loans in Singapore 2023
Con: More Research Required
Banks will have the incentive to promote their own loan products to you over their competitors. You would need to do more research on your own to compare interest rates and repayment terms across the different banks and financial institutions.
Where Should You Get Your Loan From?
Ultimately, both a loan broker and a bank will offer you competitive interest rates on your loan. Your decision to go to either is based on your personal preferences and profile.
If you are someone who values convenience and does not want to spend a lot of time shopping around for the best loans, choosing a loan broker could be the right option for you.
With loan brokers like Lendela, there will be friendly and helpful staff who can advise you on a variety of loans to help you find a suitable one.
If you are a lower-income earner, the lower minimum income requirements of loan brokers can make getting a loan a much easier process as compared to going directly to a bank.
On the other hand, if you prefer to have greater control when choosing your loan, or foresee yourself refinancing your loan in the future, it might be more beneficial to go straight to a bank.
You have the greatest control in choosing what loan is best for you when you do your own research. Banks are also able to offer you more refinancing options by refinancing your existing loan with them, which is particularly important for large loans such as mortgage loans that you are likely to refinance in the future.
If you think loan brokers are a good fit for you and are interested to know more about Lendela, check out our detailed review on their personal loan products.
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