Throughout life, many of us will apply for loans to help us achieve our goals, for example, a mortgage, personal loan, or student finance. If you’re thinking about taking out a loan in the future, it helps to know more about how to choose a lender. Whether you’re looking for a payday loans uk direct lender, a lender with a good reputation like a bank, or you’re thinking about using a broker to help you find the best deal, learning more about potential lenders can be helpful. Read on as we take a closer look at direct lenders and the pros and cons that come with applying for a loan with them.
What is a direct lender?
Let’s start with the definition. A direct lender is a financial institution that lends money directly to a borrower, instead of using a middleman, or a broker. A direct lender can be found on your local high street, or online – depending on your preferences. Here are a few different types of direct lenders:
- Banks: The most popular type of direct lender is your bank. Banks can offer a range of loans, from mortgages to personal loans to student loans, and if you have a good credit score can also offer low-interest rates.
- Credit unions: A credit union is another example of a direct lender. Slightly different from a bank, they are a self-help cooperative that pools together savings to offer credit with low interest rates. A credit union requires you to share the same credentials as other borrowers to take advantage, like living or working in the same area, and you must be a member.
- Online lenders: If you’d prefer to apply for a loan from the comfort of your home, there are many online lenders to choose from. You can benefit from payday or short-term loans, personal and business loans with the click of a mouse. Applications are quick and easy, and approval requirements tend to be more lenient.
Advantages of a direct lender
Now we know about what a direct lender is, you’ll need to weigh up the pros and cons. One of the most notable benefits that come with these types of lenders is that they own the funds they’re offering, and therefore can offer a range of flexible terms and conditions. The application and approval process is often quicker as communication does not have to be had through a middleman. This is also helpful if you need clarity on the services they’re offering – you can get in touch with your lender quickly and easily. Your information will also be kept with your direct lender, so you don’t have to worry about sharing it with others, like a broker.
Disadvantages of a direct lender
One of the main disadvantages is that some direct lenders, like banks, may have stricter requirements, which means if your credit score is not perfect, you’ll find it harder to be approved and will not have the chance to benefit from some of the best interest rates. You may also find you have limited loan options as direct lenders only offer loans they provide. You may also find that some lenders are not transparent about their interest rates and fees, which makes it harder for you to get an accurate idea of how much you will have to pay back.
Considerations before applying
There are a few things to keep in mind before choosing a direct lender, such as:
- Reputation: Make sure you research a lender’s reputation before choosing to apply for a loan with them. Look for recommendations and reviews so you can get a better idea of the services they offer, and whether they are trustworthy.
- Interest rates: Make sure you are aware of the interest rates that a borrower is offering. This is essential as the rate you’re offered will add to the total cost of your loan. If interest is too high, you may struggle to repay the loan.