What is a car finance broker?

If you’re considering taking finance out on a car, it is possible to go via a lender direct, but in most cases it’s both more convenient and more cost-effective to use a car finance broker.

This is because a broker will deal with multiple finance companies. By using them, you will save time having to fill out multiple applications (which could also potentially have a negative effect on your credit score), and you will be more likely to find a deal that suits your individual circumstances, at a better price.

The main reason for this is that individual finance companies will specialise in lending to certain types of customer, with specific risk profiles. A broker will be able to link you as an applicant for finance with multiple lenders, meaning you’re more likely to be able to find a finance deal that’s better value for your particular circumstances.

It’s important to be aware that the broker will not physically lend you the money or extend you the credit for car finance - they will merely arrange the deal between you and the lender.

How car finance lenders work

Where one lender might focus on those with lower credit scores, another will look at the lowest-risk customers and yet another might specialise in medium-risk customers, or younger drivers.

By having a specific ‘risk profile’ for their customers, lenders can then work out more easily the sorts of interest they will need to charge in order to make a profit, and how likely it is that a customer will fall behind with payments.

Therefore if you deal direct with a lender, they will only be able to offer competitive rates to very specific demographics. Of course, as a general rule of thumb, the higher the risk category you fall into, the more expensive it will be for you to take out credit, whatever the specialism of a particular lender.

How car finance brokers work

A broker, on the other hand, will have access to a panel of multiple lenders. And because they are dealing with multiple finance providers that specialise in different areas, a broker is more likely to be able to offer competitive finance to drivers from many different risk profiles.

As an example, BuyaCar works as a credit broker. It operates with 10 or so lenders as well as other brokers to find car finance deals that best suit different drivers' credit profile and budget.

How a broker will work out which finance provider is best for you

The type of parameters that BuyaCar uses to decide which finance provider is the most suitable include a driver's credit score, the amount to be borrowed, the vehicle type (car or van), product type (Personal Contract Purchase or Hire Purchase) and driving licence type (in many cases having a provisional licence may mean that you have to take out guarantor finance.

Brokers use these factors to establish which lender can offer the best value finance options to a customer, enabling the broker to find competitive finance options for more people than one individual lender could.