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We believe the death of the UK Highstreet has been exaggerated, but it’s hard to deny that the banks are becoming a much rarer sight than they used to be. This is difficult for some of us as we use our banks for nearly all of our financial concerns. If we need advice or help with money in any way then our high street bank is, historically, our first port of call. But this is changing.
We’re not sure if that’s because more people are relying on online banking or other digital solutions for financial aid, making the Highstreet bank less relevant. Or if the banks have purposely evolved to appear more and more like a direct lender, something they’ve been competing with now for decades, and arguably in a losing effort.
A direct lender is a company specifically set up to lend money to customers without themselves or the customer needing to deal with any third parties. They exist as one entity, combining all the features and stages of money lending into one place. For example, they cut out middlemen like brokers and provide the money themselves, unlike banks who tend to rely on private equity accounts to source the actual funds.
While nobody really uses the term indirect lender one example of this in practice is when you apply for a mortgage in the UK. Under FCA law, an individual who applies for a mortgage needs to receive independent and impartial financial advice from a mortgage broker. The broker themselves provides a very valuable service, first the assess the customer’s finances and advise them what their options are. Explaining what mortgage products are realistic, how much they are likely to be approved and what they need to do to achieve it. Then they liaise and negotiate with the banks and building societies in an effort to get the customer the best deal possible. They also handle most of the paperwork and other busy work like chasing solicitors and estate agents.
Naturally though this service isn’t free. The broker is usually paid a significant amount of money for their services, but when applying for a large amount of money such as a mortgage, hiring one is necessary, advisable and something we’re bound by law to do. A lender cannot provide a mortgage unless the customer has been advised by a third party in an official capacity. Only once the loan is approved and active does the customer then deal with the lender directly, but even then they’re likely to be dealing with the bank or building society. Not the financiers behind them.
This all depends on the size of the loan, generally for amounts that are higher that £10,000 the customer is required to seek independent financial advice. A customer can seek advice for any amount if they choose, but only after this the above amount is it recommended and often enforced by law. This is why a reputable lender will always encourage the customer to seek impartial advice, sometimes recommending a partnered broker to them.
But for smaller amounts of money a broker becomes less important. A customer can usually decide themselves if borrowing £1000 is a sensible idea or not, and with help from their bank. But even a loan like this is considered indirect, that’s simply because of how banks and building societies are structured.
Lenders that are able to payout this quickly do exist but only to those that they approve. Like any other type of loan, 15-minute loans direct lenders also have their set of requirements that you have to strictly comply.
As we’ve established, banks and building societies don’t class as direct lenders due to their reliance on brokerages and private venture capitalist enterprises, so who does? A direct lender is any firm that sets itself up legally and ethically as a private loans company. A payday loans company is a good example, but not all direct lenders are payday loan companies.
Direct lenders aren’t subject to the exact same rules as indirect lenders. That’s because they are normally a smaller private enterprise, lending smaller amounts of money to customers who require that sort of loan. However, they are all still subject to FCA regulations and many of the same laws that govern all lenders in the UK, regardless of if they are considered direct or not. But for the most part, a direct lender can establish its own business practices and target audience, as long as it operates within the law.
There are pros and cons associated with direct lenders, as there is with any financial company or product, but here are some of the benefits:
Loans can be approved within 15 minutes. This has earned them the moniker ’15 minute loans’ or instant loans’ depending on the provider. They can normally be approved quickly online without the need to make an appointment or ring a call centre.
Most direct lenders who offer small amounts of cash, such as a payday loan company, approve most small loans without quizzing the customer about their credit rating. They are seen as a lifeline to some for this very reason. They can even be used to build one’s credit rating back up by being approved then paid back time and time again.
As loans like this are considered personal loans or unsecured loans, the customer isn’t expected to provide any assets or guarantors in order to be approved. Of course there are ramifications for not paying it back on time, but direct lenders are usually much more lenient, especially if the amount of money lent is small.
Some direct loan companies, especially payday loan firms have worked hard to escape negative stigma that has been attached to them in the past. If a direct lender is approved by the FCA and has positive reviews on sites like TrustPilot.com, then chances are they are just as reputable as any bank or building society.
This is the main draw, a direct lender is there if they are needed, providing a quick and easy solution for us if we should ever be in a crisis. Think of them like a financial safety net we can fall back on any time.
There are lenders that will still consider your application even if you have bad credit. But, the approval is never guaranteed.
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