A lender charges loan fees for lending an amount to a customer in the form of interest. In most cases they use this ‘interest’ to pay the broker or dealership which referred the customer to them. This payment is encompassed within the loan. Most finance documents detail what commission has been earnt by the lender; but not the broker or dealer. If you want to know what commission has been earnt by your broker or dealer; you can contact your them for details. In line with FCA guidelines, they must respond to commission disclosure requests within 14 days. If you settle your agreement early, a portion of commission earned by the lender, broker or the vehicle dealer may be returned to you.
In some cases brokers charge for their services, but they must disclose this to the customer before they process their application. The broker may also pay an authorised Vehicle Dealer a commission for referring the customer to them; this is calculated as a percentage of the finance interest quoted or on a case-by-case basis. Most brokers, however, are solely paid commission from the lender for their services. In this case, customers are not directly charged for credit broking services.
A lender may also charge a ‘document fee’. This is a fee for the cost of the documentation and the costs of processing the application. If the agreement is charged at an APR rate, in most cases, this will be encompassed in your monthly repayments. If the agreement is charged at a flat rate, this cost will be an extra cost on top of your repayments. Most brokers or lenders will allow you to spread this cost across your repayments, or pay it as a lump sum. The cost of the ‘document fee’ will vary from lender to lender; typically sub-prime lenders have a larger ‘document fee’ as more information is required to secure the loan.