If you Google keywords such as “direct lender” or “payday loans,” the search engine will show you a bunch of options that should be the most relevant in respect to your location in the UK. However, not all of those options that come up on your Google search are direct lenders. Some of the links will lead to a credit broker’s website instead, although you might not be able to tell the difference right away. They usually have similar web interfaces, but whether you are dealing with a credit brokerage or a direct lender company, it should become apparent as soon as you read the landing page.
It is quite important to know the differences that separate businesses offering you a loan and brokerages that are offering to find a loan for you. As to what those differences are, and why they are important to the potential loanee, we will discuss those aspects and more in detail next.
Lender Companies: Definition and Explanation
A lender may also be known as a payday lender, direct lender, short-term lender, etc. but they will always be the company from which the borrower will get their money. As the actual lender, they will also be the ones receiving every payment with interest added on. In other words, when you take a payday loan directly from a lending company, you are interacting with the original source of the money. There is no third party involved in the transaction, which is why such companies are often designated as direct money lenders.
Credit Brokerage Companies: Definition and Explanation
A credit brokerage company, on the other hand, does not lend you the money because that is not their business model. Instead, they act as a connection between the people who want or need short-term loans, and the lenders who can provide the money to them. For example, New Horizons is an FCA-registered and regulated credit brokerage with connections to multiple UK top short-term lenders. When you go through them, New Horizons will take it upon themselves to help you find a loan that best fits your requirements. No fees are charged to the loanee while ensuring that:
- The loan gets approved (90% approval rate) most of the time
- The decision to approve or disapprove the applied loan is made within minutes
- The payment post-approval goes through to the loanee’s account within roughly 15-minutes or less
- The short-term loan doesn’t end up getting added as a negative element on your credit footprint
Additional Differences in Between a Direct Lender and a Credit Broker
There are several other differences between a payday lender and a credit brokerage company, but another important one of these differences would be the success rate. By success rate, we are designating an applicant’s chances of successfully getting the loan they need.
A payday lender will conduct a quick financial assessment of the applicant, to determine his/her affordability ratio, in proportion to the loan amount they have applied for. This means that if the applicant does not qualify for the loan, that assessment will be based on the lender’s private criteria, alongside certain universal criteria set forth by the FCA. This may limit the chances of approval for some applicants, especially those looking for bad credit loans.
On the other hand, the credit broker will simply take the applicant’s loan request and use their business connections to contact every lending partner that they have. Consequently, a potential loanee will now be considered for the loan they need by multiple payday lenders, instead of just one. The credit broker will work towards helping you find what you are looking for, or at least something close to what you need under the given circumstances. Due to the increased exposure, options, and business connections, credit brokers can naturally guarantee a much higher rate of loan approvals compared to a single lending party.
Do Credit Brokers Charge a Fee?
The business model of a credit brokerage company will determine whether they will be charging a fee or not. The more reputed, resourceful, and well-connected a brokerage is, the lower your chances of being charged a finder’s fee. This is possible because reputed lenders will always collect their fee/commission from the lender providing the loan. As a result, the borrowing party should not need to worry about a finder’s fee for payday loans, as long as they are dealing with a well-connected credit broker.
A finder’s fee is likely to be charged by the less reputed or brand-new credit brokerages that do not yet have strong connections to the top money lenders in the UK. They might not be getting any commissions at all, or their commission percentage could be too low for the business model to be sustainable without a finder’s fee. If you are dealing with an authentic broker, even if they don’t have enough power to cut out the finder’s fee, it doesn’t mean that they are charging you illegally. Nevertheless, it’s just a better option if you do not have to pay any fee to the brokerage, especially given that people already pay such high rates of interest on payday/short-term loans.
Reputed Credit Brokers Vs. Reputed Lenders: Which One is a Better Option?
The answer is quite straightforward and, thankfully, a question that can be answered without taking the specific financial conditions of the applicant into consideration first. Reputed and connected credit brokers provide access to multiple reputed lenders, increasing your chances of being approved for the loan you need. They also do not charge a fee for their services, or at least they don’t charge it to the loanee, who is already in financial distress.
Dealing with a good credit brokerage company with FCA approval is similar to dealing with multiple top lenders at once but without the hassle of applying to each of them individually. On top of that, the brokerage will use its business influences to help you get the loan, given that their business interests are directly tied to the borrowers getting and paying back the loan amounts with interest. In every possible way, visiting a credit broker of good repute is a much better option than going to any one or more direct lenders individually, irrespective of how well reputed they might be on their own.
From the perspective of a loanee with high affordability, brokers bring another major advantage to the table. In fact, this one has been a major reason behind the recent popularity of credit brokerages. Consider the fact that even if you get approved for a loan right away by one of the best money lenders in the UK, how will you know that you couldn’t have managed to negotiate an even better deal, by going to the next creditor on your list?
A credit brokerage website lets applicants compare all offers received from various top lenders in one place so that no stone is left unturned. Credit brokers are not just about finding a company that is willing to accept your loan request, but they are also about helping borrowers mitigate their expenses by choosing the most sensible loan deal they are entitled to.