Payday loan broker vs. direct lender: What’s the difference?

The need for a little extra money has a way of hitting us hard when we least expect it, and traditionally, payday doesn’t adjust itself to meet our unanticipated needs. That’s where short-term payday loans may help bridge the gap.

When it comes to comparing payday loans, it’s important to know the difference between a broker and lender. While payday loan and credit brokers can offer added convenience, they can also come with hidden charges and risks.

Read on as we explore the difference between a credit broker and a direct lender, comparing the potential benefits, and considerations for each option.

In this guide:

• What are payday loan brokers?
• What are direct lenders?
• What are the advantages of direct lenders?
• What are the advantages of using a payday loan broker?
• Broker vs lender: What else should I know?
• Types of payday loans direct lenders offer
• Key takeaways: What’s the difference between a broker and a lender?
• How Moneyboat can help

What are payday loan brokers?

A loan broker is an individual or business that helps people find loans. Brokers differ from lenders as they aim to help borrowers navigate their options and find an affordable loan for their situation.

Brokers can't offer borrowers a loan themselves – they can only recommend loans from a third-party direct lender. Some brokers will also take care of the application process for borrowers looking to apply for a payday loan. Payday loan and credit brokers may charge a fee for their services, which could be payable either by commission from the lender they recommend or by the borrower.

What are direct lenders?

Direct lenders are businesses that loan money directly to the customer, rather than going through a middleman like a credit broker. With direct lenders, borrowers can apply for loans and receive a decision quickly. If approved, the funds will be transferred into your account. Responsible direct lenders will provide all the information borrowers need to make an informed choice with no hidden fees.

What are the advantages of a direct lender?

There are plenty of potential advantages to seeking a loan from a direct lender instead of a broker:

Faster decisions and funding

If you need a loan quickly, the last thing you need is to wait around for a broker's recommendation before you can apply for a loan and receive a lending decision. When you reach out to a direct lender, you can often get a decision within minutes, and the money in your bank within hours.

Clear costs and no broker fees

Some brokers may charge you for their services, or earn commission from the lender they recommend. By going direct, you avoid these extra costs. And if you do change your mind about using a broker, the Financial Conduct Authority (FCA) requires them to refund your money within 30 days if you cancel during the 14-day cooling-off period.

Direct communication with your lender

Working directly with your lender means a simpler process. You’ll get straight answers to your questions, clear support when you need it, and full visibility of who you’re dealing with at all times.

If you experience any problems getting a refund on fees you’ve paid, or feel you’ve been misled by a payday loan broker, you can file a complaint with the Financial Ombudsman.

What are the advantages of using a payday loan broker?

Depending on your situation, you might find it easier to look for a payday loan with a broker rather than a lender.

Save time

With a broker, you may save hours comparing loans, calling different providers looking for the best deals, and filling out forms for quotes. They act as intermediaries between the lenders in their databases and the loan-seeking public. If you have a busy schedule, this could be an added benefit to using a payday loan or credit broker.

Brokers do the investigation for you

The job of a broker is to find a lender that’s suitable for your needs. Brokers often have a pool of entrusted lenders they can choose from, giving you peace of mind that they’ll help you find a favourable loan when you need it most.

More options available

Whether you require a short-term loan to cover home improvements or an urgent loan before payday, a credit broker will often be able to offer different products to match your needs. For example, while some customers may be concerned about getting the lowest interest rate available, others may be more interested in paying back in flexible instalments.

Broker vs lender: What else should I know?

On top of potential fees and application delays, there are other considerations to bear in mind if you’re thinking of using a broker over a direct lender.

• Do your research before you apply: In some cases, brokers may not make it clear to potential borrowers that they’re not direct lenders and cannot lend money themselves. Borrowers have been known to fill in forms, assuming they’re applying for the loan, only to find out later that they were simply handing their details over to a broker, which then charges them a fee. In some cases, prospective borrowers may end up paying several fees to the broker before ever taking out a loan.
• Look out for unauthorised brokers: Practicing diligence is essential when comparing financial products. Some brokers may try to pass themselves off as legitimate advisors, despite not being registered or authorised by the FCA. This means they don’t have to comply with basic regulations that protect consumers in the financial services industry. No matter if it’s a broker or a direct lender, always check the FCA Register to make sure they’re authorised to provide the services they promise.
• Be mindful of submitting multiple applications: Applying for a loan with multiple brokers or lenders in a short period of time can be harmful for your credit score. Hard credit checks can cause your credit score to drop temporarily. And if you’re turned down, the next loan you apply for may offer less favourable terms. Learn more about soft vs hard credit checks in our credit check guide.

It’s often better to research different loans yourself, checking direct lenders for:

• Borrowing terms
• Product information
• FAQs
• Eligibility criteria
• FCA-registration status
• Responsible lending practices
• Trustpilot reviews
• Smart Money People reviews

Once you’re happy with the product, you can apply for the loan directly. This way, you’ll receive a decision quickly and could have the emergency funding in your account the same day.

FCA rules and credit brokers

The FCA requires all payday loan and credit brokers to make it clear on their website that they’re not direct lenders. FCA regulations require brokers to present you with a written notice declaring the following:

• That they’re a credit broker
• Their legal name
• That they intend to charge fees and the value of those fees
• Details of when and how they will charge any fees

This must be provided before they take any payment details from you or charge you any fees. According to the Consumer Credit Act, brokers must also refund your entire fee (aside from £5) if they fail to find you a suitable loan within six months of entering an agreement.

Payday loan eligibility requirements

For the most part, you’ll need to pass the following provisions to be eligible for a payday loan:

• Age: You’ll have to be at least 18 to qualify
• Employment: Lenders check your current employment status to ensure you have a way of paying back your loan
• Income: For those applying with a direct lender, a monthly income of at least £1,000 is the norm

For more on this topic, dive into our guide on everything you need to know about payday loan criteria.

Types of payday loans direct lenders offer

You’ll find that there are several types of payday loans, or short-term loans, available through direct lenders online:

Traditional payday loans

Typically, payday loans must be paid back in a single lump sum on your next payday. Traditional payday loans can be helpful for borrowers who are confident they can afford to pay it back by their next pay cheque, plus interest. However, these types of payday loans can lead to financial challenges if borrowers get into a cycle of borrowing every month to make ends meet.

Instalment loans

Instalment loans became more popular after the FCA introduced tighter payday loan regulations to help protect the consumer. This type of short-term loan allows borrowers to repay the amount owed over several months in flexible instalments. By spreading out the cost, this can help borrowers avoid a cycle of debt. However, you may accrue more interest charges if the loan is repaid over a longer period, which is important to bear in mind.

Lines of credit

A line of credit is a type of loan available to you on request, up to a limit, but you’re usually only charged interest on the amount you withdraw or spend. For example, you may be accepted for a loan totalling £200, but if you spend only £50 of that, you will be charged interest on £50, rather than £200.

Key takeaways: What’s the difference between a broker and a lender?

To recap, the main differences between payday loan brokers and direct lenders include:

• The source of funds: With a direct lender, you’ll apply for and receive funds directly from the company. Meanwhile, a payday loan broker can’t lend you money, but will match you with a suitable lender that can.
• Application process: When you apply for a loan with a payday loan or credit broker, you’ll submit one application, which the broker will match with their pool of lenders. With a direct lender, you’ll have the flexibility to get a quote from any lender, but you’ll need to apply individually each time.
• Fees: On top of any interest and fees associated with the loan, payday loan brokers may charge fees or earn commission from the lenders they recommend to you.

How Moneyboat can help

Here at Moneyboat, we disclose all fees upfront before asking for your financial information. No hidden fees and no surprises.

When you choose a direct lender like us, you’re free to shop around for the lowest rates. Brokers do this on your behalf, which is one of their main selling points. But brokers are also paid to bring your business to their clients. So, you can choose to apply directly or use a broker, but it’s important to understand the possibility of additional agency costs.

Apply online with us today  or continue your journey to financial confidence with our helpful guides. Find out how to improve your credit score and understand budgeting strategies like the debt snowball method.

If your debts ever feel like they’re becoming unmanageable, help is just a call or click away. You can find independent financial advice and support from third-party organisations such as Citizens Advice, StepChange, MoneyHelper and National Debtline.

Important: Moneyboat provides a flexible short-term loan.  Although these loans are widely recognised and often searched for by our customers as 'payday loans,' our focus is on providing clear and accessible financial options that meet your needs.