Although they are still sometimes criticised in the press – and by some financial experts – payday loans – also often known as short-term loans – in the UK have changed a great deal over just the past few years.
Changes in the law have not only helped ensure that the terms and conditions attached to such loans are fairer for everyone – especially in terms of interest rates – but that the whole process is now considerably more transparent than it used to be – especially when it comes to deciding who to apply for a loan from. Should you choose payday loans direct lenders or work with a payday loan broker? And what is the difference between the two anyway? Read on and we’ll explain.
PayDay Loans Direct Lenders vs. Loan Brokers
Almost all payday and short-term loans are offered in the UK via Payday loans are generally available through two types of lenders: a direct lender and loan broker. Under UK law companies must now be very upfront about which category they fall into (something that was not always the case in the past) and you should always be able to find that information on a company’s website.
Payday loans direct lenders take care of the entire loan process. The same company that accepts your loan application also makes the loan and supplies the funds. A payday loan broker takes your basic information and then helps match you with a number of direct lenders who may be able to help you. Which should you opt for if you are considering applying for a payday loan. Many would say a direct lender, but as is the case for almost everything there are both pros and cons to consider:
The Pros of Payday Loans Direct Lenders
Many of those who apply for payday loans do so because they need money rather quickly. It’s the reason the loans have the name they do – these are small loans designed to meet emergency or urgent expenses that just can’t wait until your next payday.
As a direct lender is in charge of the whole loan process – from initial application to credit check to fund disbursement – it tends to be much faster than working with a broker, and for some that is extremely important indeed.
Your Personal Information Stays a Little Safer
Some payday loan brokers do make money solely out of selling your personal application information to third parties, third parties who then contact you with additional loan offers, other financial offers and, in a few cases, some rather irrelevant information as well.
Most payday loans direct lenders, on the other hand, keep your personal information private. If that’s a concern for you, always call and ask a customer service representative about the company’s privacy policies.
Cons of Payday Loans Direct Lenders
Lack of Loan Choice
Because they are just a single company offering a limited range of loan options working with means that you may not have access to the most competitive loan terms or interest rates as you haven’t had the chance to ‘shop around’ for them.
A payday loan broker basically does that for you. They can offer you access to loan applications for a number of different companies while also helping you make a decision about which of the large number of payday loans available would be right for your unique situation. They take your initial application, run your credit, and then work with you to find your best match.
Lower Approval Rates
You may or may not know this, but every time your credit report is requested by a lender it shaves a few points off your credit score for up to a year. Usually, that’s not too much of a problem – it’s only a few points – but if you have poor credit and apply for several loans at once, those points can add up, and in a bad way. Therefore, if you apply for a short-term loan from a direct lender and are turned down, you will need to be very careful about applying for others in order not to damage your already delicate credit score.
If you work with a loan broker, they pull your credit score and then use this information to find several lenders for you to choose from. Without a second credit score pull.
In the end, there are both advantages and disadvantages to working with a payday loans direct lender for you to consider. The most important thing, whatever you decide, is that you do take the time to do this before you take out any payday loan.