A direct lender loan is a loan that you take if you don’t want to involve any third parties, like a bank or a broker. All the financial and legal parts of the loaning process are handled by the lender for such loans.
These lenders include commercial banks, private equity firms, real estate investment trusts (REITs), and other online lenders. Apart from not involving a third party, you might be wondering what separates these direct lenders from banks and credit unions.
We’ll clear up that confusion for you. In this article, we’ll be explaining five benefits of choosing a direct lender loan over traditional lending options and why it could be a good financial option for you.
You might need an immediate loan to pay off an unexpected expense, such as a medical bill. In times of such an emergency, it can be quite frustrating when banks take days or sometimes even weeks to process your loan application.
This problem doesn’t exist with direct lender loans. Since they handle everything from reviewing your application to ensuring that you get the loan themselves, you don’t have to go through multiple levels of approval.
Additionally, banks typically require you to provide extra paperwork and undergo long background checks before deciding on your eligibility. In comparison, direct lenders have simple criteria and thus allow you to get verified quickly.
2. Flexible Eligibility Criteria
Banks usually have strict lending criteria, which could limit your traditional loan options if you aren’t eligible. Even if you were to get a loan while being ineligible, your interest rates are most likely not going to be favourable.
With direct lender loans, however, the requirements for getting a loan are more flexible. This makes it easier for people who have a poor credit score or history.
You can qualify for a direct lender loan even if your loan application has been rejected by a bank before. This allows you to get a second chance at financial assistance and if you repay it on time, can potentially improve your credit score to qualify for bigger loans.
3. Personalised Loan Terms
While it isn’t guaranteed, you have a better chance of getting a loan that fits your specific needs when you work with direct lenders. A bank may not change the repayment terms of its loans according to your financial situation, but a direct lender might.
Direct lenders often provide more flexibility in loan amounts, repayment periods, interest rates, and approval criteria. For instance, a lender can charge up to 2 months’ additional interest if you choose to pay off your loan early.
That said, you could negotiate about this topic with your lender if your current financial situation allows you to pay off a loan early. This way, you would avoid penalties while clearing your debt and saving interest.
4. Direct Communication
You might have gone through the unfortunate experience of staying on hold after talking to a robot for enquiries related to your loans. Nobody enjoys that, as more often than not, it just ends up creating communication barriers between you and your bank.
The entire loaning process would become more efficient when you communicate directly with the lender instead of a middleman, which is exactly what a direct lender offers.
Along with making your transactions smoother and convenient, this also allows you to directly talk to your lender in case of any changes in your financial situation. The lender might be willing to make changes in your loan terms if they find it to be valid.
There’s a higher chance of negotiating repayment terms when getting loans from direct lenders. They’re more open to discussing terms that align with your current financial situation, whether it’s a longer repayment period or slightly reducing your monthly payment.
While you can still negotiate with traditional banking services, they typically stick to their pre-set loan limits and terms, and are difficult to negotiate with. The personalised approach of a direct lender helps you borrow exactly what you need without strict conditions.
This is especially true if you encounter unexpected financial difficulties during repayment, as you can renegotiate your loan terms with a direct lender.
Conclusion – Should You Choose Direct Lenders Over Banks?
When it comes to borrowing money, direct lender loans offer multiple benefits over traditional banking options that make them worth considering. They’re more easily accessible and can save you money over the lifespan of your loan.
That said, you should make your choice of lender depending on your current financial situation. While direct lender loans offer flexibility and lower costs, banks often provide more secure lending options for a longer period.
It all comes down to what you need and comparing the different options available to you. Choose the lender that fits your financial situation best.
Johnny Thompson is a senior reporter for Generator Research in Los Angeles, reporting on technology, business, finances, and more. He previously worked as a reporter for the Wall Street Journal and got his start at newspapers in New York, Connecticut, and Massachusetts.
