What is a max spread deal and how do I avoid one?
A max spread deal is one where the broker or dealer has added the largest margin the lender permits on top of the wholesale rate. Nothing about it is unlawful and the paperwork will be perfectly correct. You are simply paying more than you needed to, and unless you ask, you will probably never find out.
How the rate you are quoted gets built
Lenders quote brokers and dealers a base rate. On top of that the broker can add a margin, up to a cap the lender sets, and that margin is how a good deal of broking is paid for. Add nothing and the broker earns little on the deal. Add the maximum and the customer pays materially more over the term without anything about the loan improving.
That is the whole mechanism. It is not a scandal and it is not hidden - it is simply something most borrowers have never been told exists, which is why so few of them ask.
Related questions
How much difference does spread actually make?
More than people expect, because it compounds over the term. On a thirty thousand dollar loan over five years, a couple of percentage points of added margin runs to a four figure sum by the end. The monthly repayment barely moves, which is exactly why comparing monthly figures rather than total cost is such an easy trap.
Do brokers have to tell me what they are paid?
Anyone giving regulated financial advice in New Zealand has disclosure obligations covering commissions and conflicts of interest. So you are entitled to ask how the person arranging your loan is paid, and by whom. A straight answer is a good sign. Discomfort at the question is also informative.
What should I actually ask?
Three things. What is the lender's rate before any margin is added? What are you earning on this deal, and how? And what is the total amount I will repay over the full term, not the weekly or monthly figure? Ask every broker you speak to, including us.
Is a broker with spread worse than going to my bank?
Not necessarily. A bank has its own margin built into its rate, it just is not itemised for you, and it will only ever offer you its own product. The point is not that margin is wrong - somebody has to be paid for the work. The point is that you should know it is there and be able to ask what it is.
How do I compare two finance offers properly?
Put the total cost of credit side by side over the same term, including fees, rather than the repayment amount. A longer term always makes the repayment look better while costing you more overall, and a lower rate with a larger establishment fee can easily lose to a higher rate without one.
Why is this page here?
Because almost nobody explains it, and a borrower who knows the question exists is in a much better position than one who does not - at any broker, including this one.
We rather expect this page to be unpopular in some quarters. That is, on balance, the point.
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