If a loan broker claims to be able to negotiate for you, walk away.

Program lending, also known as policy-based lending, formula-based lending, or checklist lending, involves providing loans based on criteria or guidelines set by the lender to help their credit officers make quick decisions and process large amounts of enquiries. 

Often brokers claim to be able to negotiate the interest rate for you to try to separate themselves from another. But it is a hollow promise.

Unless you are a high-net-worth customer or a large company — in which case you would likely have a private banker or CFO and wouldn't require a loan broker — most borrowers will find that, due to the “straightforward” method of program lending assessments (which you can read more about here), one bank or lender may offer a different rate compared to another. The best way to find a cheaper loan is simply to compare across options.

Furthermore, these days lenders deploy machine scoring, so there is no one to even negotiate with. Loans are also one of the few rare products where a seller doesn't always want more customers, let alone one that is haggling when another customer will simply buy. If a lender always has that margin to negotiate down, how are they going to be competitive?

Discretionary lending allows for a more flexible and tailored approach to lending, considering the unique needs and characteristics of each borrower.

It, therefore, requires extensive evaluation, research, and analysis by the lender to assess the borrower's creditworthiness, risk, and other qualitative factors such as the borrower's business strategies and competitive landscape. Because of the high manpower and cost required to evaluate and craft a proposal/s, they are usually reserved for very high quantum loans taken by large companies or high-net-worth individuals.

Discretionary lending typically involves lengthy proposals back and forth with more than just quantum or interest but many other terms and conditions for the borrower to consider and negotiate—usually by the C level of the CFO and typically cannot be performed by a broker that is involved only during the loan application process and lacks the insights of the company that may take years to form to be taken seriously by the lender.

A discretionary borrower typically enjoys many years of personal relationship with their main bank, which has good insights into the borrower and will be able to do their assessment differently from other lenders, and may not find it that beneficial to shop around.

Want to know the common ways loan brokers mislead borrowers? Read the full article here.

As some brokers engage in false advertising, others follow suit just to stay competitive—resulting in a race to the bottom in transparency.

This ultimately hurts borrowers, who are left trying to navigate a landscape filled with overpromises and little accountability.

We are trying to change that by calling for regulations. Sign the petition here. 

#StopClickbait #SGloan
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