People may need to take out loans for a number of reasons, such as covering an unexpected cost, buying a new car or to bridge them over till payday, among other reasons. Taking out a loan is a big decision and never one which should be rushed, so it’s important to fully understand the process.
When looking at different loan providers, it may be confusing to see some referred to as a direct lender and others as a broker. So, what are the differences between them, and how might it impact your decision who to take a loan from?
Loan Broker
Join The European Business Briefing
New subscribers this quarter are entered into a draw to win a Rolex Submariner. Join 40,000+ founders, investors and executives who read EBM every day.
SubscribeA loan broker acts as a third party when someone is trying to secure a personal loan. They will collect the borrower’s information and then search for the best option from a selection of lenders who can provide what the customer is looking for. If the borrower selects one of the loans, they will then be passed over to the lender to complete the application. You do not borrow money from a broker but some may charge a fee. Alternatively, some earn their money through commission from lenders.
Direct Lenders
A direct lender, meanwhile, is simply a company that can provide you with a loan and you will pay the money back to them over an agreed period. They will be the one that gathers your information and carries out a credit check to determine whether or not they will approve your application. It can be faster to apply directly to a lender. However, you’re unlikely to have the benefit of viewing multiple options to choose from unless you carry out your own extensive research.
The Best Option
Those that want a range of options but do not want to fill out multiple applications might find it best to use a broker. If you want to cut down on fees and you don’t mind doing your own research, you’ll find that most direct lenders will have eligibility requirements on their website. This will help you to avoid having a hard check on your credit file (which could affect your credit rating) by reviewing lenders before you apply for their products. It may be possible to get approved for a loan if you have a lower credit score as some direct lenders offer bad credit loans.
