Private Lender vs Broker: Who Are You Actually Dealing With?

Key takeaways

• The lender makes the credit decision; the broker arranges access to lenders.
• Brokerage is a separate fee from the lender's establishment fee.
• A good broker earns their fee in lender selection and structuring.
• Ask for fee disclosure in writing before you commit to anything.

The difference in practice

The lender is the party whose money is at risk. They set the credit policy, make the decision, hold the security and are named as mortgagee on your documents. The broker is an intermediary who knows which lenders will look at your deal, packages it, and negotiates terms - but approves nothing.

Confusion is easy because many private lending businesses do both, and because a broker is often the only party you ever speak to. The practical test: look at the letter of offer and the security documents. The entity named there is the lender. If the business you have been dealing with is not that entity, you have been dealing with a broker or an intermediary.

This matters when something goes wrong. Variations, extensions and hardship discussions are decided by the lender, whatever the broker indicates - so it is worth knowing whose commitment you actually have.

How each is paid

The lender earns the interest and its establishment fee. The broker earns brokerage, usually a percentage of the loan amount, and on private deals this is commonly paid by you rather than by the lender.

Ask for every fee in writing before you proceed, and ask specifically whether the person arranging your loan is being paid by you, by the lender, or by both. A straightforward answer is a good sign; evasion is a better signal than any credential.

Do you need a broker at all?

Sometimes not. If your deal is straightforward, your security is clean and you know which lenders operate in your space, approaching lenders directly avoids brokerage entirely.

A broker earns their fee when the deal is not straightforward - unusual security, a tight timeframe, a structure that needs explaining, or a market you do not know. Private lending policy varies enormously and is largely unpublished, so knowing which three lenders out of fifty will actually fund your scenario has real value, and saves the scattergun applications that damage a credit file.

There is a third option that avoids the either/or: post your scenario once and let matching providers respond, or browse the directory and approach lenders directly. Both are free for borrowers, and posting once avoids the cluster of credit enquiries that separate applications create.

Frequently asked questions

How do I tell if I am dealing with a lender or a broker?

Read the letter of offer and the security documents - the entity named as lender or mortgagee is the lender. If the business you have been talking to is not that entity, they are an intermediary. You can also ask directly, and ask how they are paid.

Do I pay the broker or does the lender?

On private deals brokerage is commonly paid by the borrower, often deducted at settlement, and it is separate from the lender's establishment fee. It must be disclosed to you in writing beforehand.

Is it cheaper to go direct to a private lender?

It avoids brokerage, which on a large loan is meaningful. Whether it is cheaper overall depends on whether you can identify the right lender yourself - a broker who places you with a better-suited lender can save more than their fee.

Related reading

• Private Loan Fees: Establishment, Brokerage and Exit Costs
• Exit Strategies: How Short-Term Loans Get Repaid
• What Is a Business Purpose Declaration?

Sources

• Credit guides and fee disclosure — ASIC
• Moneysmart - using a broker — ASIC