Find the Best Personal Loan for Your Needs
If you need a loan, a direct lender could be a great option for you. You're probably wondering what a direct lender is and how these loans differ from other ways of borrowing money, and the second question on your mind is probably what the advantages of these loans are. Luckily, this article will answer both of those questions for you!
So, What Is A Direct Lender Anyways?
A direct lender funds the loans that they offer, and as a result these organizations tend to be major financial institutions. In many cases, these organizations are major banks, which means that the loans are regulated and protected by the FCIC. However, it's not just banks that offer direct lending services. In most cases, direct lenders offer a wide range of loans in addition to personal loans.
In some cases, direct lending takes the form of a credit card. Credit cards are often offered by many major financial institutions that also offer mortgages, and these cards offer some of the same set of benefits that come with other forms of direct lending. However, the difference between a credit card and a personal loan is that credit cards tend to feature much higher interest rates. In fact, it is not uncommon for the interest rate on a credit card to exceed 20%, but personal loans can have interest rates as low as 6% or even lower.
If You Have Bad Credit, A Direct Lender Could Be Right For You!
If you are struggling with bad credit, it can be difficult to find a lender to borrow from. However, direct lenders can offer a relatively low risk option for people with bad credit. In fact, some direct lenders offer personal loans that are designed for people with low credit scores.
In addition, direct lenders tend to come from widely known organizations, such as major banks. However, this is not always the case, and there are smaller direct lenders that cater to people who have low credit scores.
You Can Choose From Different Types Of Direct Lenders
There's a big difference between secured and unsecured loans, and it's important to make sure that you are aware of the type of loan that you're choosing is. Secured loans require collateral, which means that the lender can take property if you don't pay it. As a result, you need to list an item as collateral in order to secure the loan. Unsecured loans can allow you to borrow without listing an item as collateral.
What Are The Pros And Cons Of Secured Loans From A Direct Lender?
If you choose a direct lender that offers secured loans, the interest rates are likely to be lower than if you choose an unsecured loan. As a result, the monthly payments could be somewhat lower. However, if you do not repay a secured loan, the possessions that you list when signing on to it could be considered collateral. If you listed your home or land as collateral, this could be taken by the lender if you're unable to make payments on the loan.
However, an advantage of secured loans is that they tend to be available to people who have low credit scores. While the specific terms for approval vary from one secured loan to another, an individual with just about any level of credit can get a secured loan if they want to.
What Are The Pros And Cons Of Unsecured Loans From A Direct Lender?
Unsecured loans from direct lenders are a great option for people who wish to ensure that they could not lose their home or other important assets as a result of non-payment. However, the interest rates on these loans tend to be a bit higher than they are for individuals who choose secured loans, which means that they're not always the better option.
There Are Different Types Of Financial Institutions That Offer Them
While direct loans are offered by major banks, they also are offered by smaller banks, which may operate on a local scale. In some cases, these banks will be able to approve loans for individuals who may not be able to get one from a bank that operates on a larger scale.
Another type of organization that offers direct loans is a credit union. Unlike banks, credit unions are non-profit organizations, which means that the interest rates on their direct loans are often lower.
If you're taking out a personal loan to pay credit card debt, you may be able to do this from a debt consolidation company. These services offer personal loans to people who have poor credit, and the loan is designed to be used to pay off credit card debt.
The federal government also offers direct loans, such as student loans, but they do not offer personal loans. Personal direct loans come from private for-profit or non-profit organizations.
In Some Cases, Prequalification Will Be Necessary
While not all direct lenders will require this, there are times when you may need to prequalify for a loan. However, not all prequalification requirements are the same. In fact, there are two main types of prequalifications to choose from, which are hard inquiries and soft inquiries.
If you receive a hard inquiry as a credit check, it will take a certain number of points off of your credit score. As a result, it is important to limit the hard inquiry loans that you apply to.
Soft inquiries do not result in a reduction in your credit score, which means that you can apply to as many loans as you want to without any impact on your credit score. Soft inquiries are the same type of inquiry that you use to do a free credit check, and these inquiries actually are encouraged in order to help you monitor your own credit history.
Does Your Credit Score Have An Impact On The Interest Rate?
In most cases, direct lenders will charge higher interest rates for people who have a poor credit score. The specific difference in the rates that are charged vary from lender to another, but they can be quite significant. Luckily, if you make all the payments for the loan that you get now, it will help to improve your credit score. As time goes on, your credit score will increase, which will allow you to borrow with a lower interest rate.
Be Wary Of Payday Loans
Payday loans can be considered direct loans, but they are best avoided. The interest rates on these loans are often exceptionally high when compared with other lenders. In addition, these lenders can be highly unscrupulous, and they're not always even licensed lenders. Unlicensed lenders are also known as loan sharks.
Due to the fact that some payday lenders are actually loan sharks, which means that they may engage in illegal tactics in order to collect the money that you owe them. As a result, dealing with a payday lender that's not licensed can be extremely dangerous and unpredictable. They often do not set a predetermined interest rate, which means that they will keep changing the terms and conditions in order to continue to collect for as long as possible.
How Do You Tell If A Short-Term Direct Lender Is Licensed?
In general, short-term direct loans have interest rates that are quite high, and there can be hidden fees in many cases. However, a short-term lender that's licensed will provide you with all the important information that you'll need to know to determine whether or not you want to borrow.
Furthermore, licensed lenders will stick to the terms that you agreed to when you sign up, and they are legitimate companies. However, unlicensed lenders will typically not give you the information that you need to make a decision, and the terms of the loan from an unlicensed lender can change drastically from what you initially signed on to.
Fortunately, if you do choose to take out a short-term personal loan, you can check to see that the lender is licensed by inquiring to see if they are registered with your state regulator and/or attorney general's office. If the state regulator or attorney general in your state does not have any record of the lender, it means that they're unlicensed. However, even if the short-term lender is licensed, it is nearly always a better option to seek a personal loan from a direct lender as opposed to a short-term loan.
Even if you have bad credit, there are options for you to get a direct personal loan. However, there will be even more opportunities for these loans if you consistently make payments on time and improve your credit score, and you'll be able to get direct personal loans that offer a significantly lower interest rate. Furthermore, there are many types of options that you can choose from when it comes to finding a direct lender for a personal loan.
Christine has a solid background in personal finance as she spent the last eight years working at one of the biggest banks in the US. She managed her own team of financial advisors that helped hundreds of people with their financing needs. Her innate understanding of different financial products and loans helped her move up the ranks quickly after graduating with a degree in Business Administration.