Broker Payday Loans vs. Direct Payday Loans

Broker Payday Loans vs. Direct Payday Loans

People are often confused when it comes to understanding the difference between broker payday loans and direct payday loans. Some say direct loans are often better, but is this always the case? If you’re deciding if you should get a loan, read on to learn more.

What are payday loan brokers?

A loan broker of any kind is an individual or business that helps people find loans. They often aim to help borrowers navigate the complex payday loans industry and find a loan that they will be able to get at a rate that is right for them.

Payday loan brokers charge a fee for their service, payable either by the lender they are recommending, or by the borrower using their services. Brokers specialising in short-term loans, such as payday loans, often operate online. 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.

What are direct lenders?

Direct lenders are businesses that can offer loans themselves. Through direct lenders, borrowers can apply for the loans they want directly and receive a decision quickly. Responsible direct lenders will provide all the information a borrower needs to make an informed choice about whether they are likely to be accepted for the loan they want and whether a loan is right for them.

What are the advantages of direct lenders?

There are a wide range of advantages to approaching a direct lender instead of a broker when you are looking for a loan of any kind:

  • You can often get a decision more quickly

If you are looking for quick cash, the last thing you want is to be waiting for a broker’s recommendation before you can apply for a loan with a direct lender and receive a lending decision. There is often a delay of some kind when using a broker, whereas if a direct lender is your first port of call, you could have a decision within minutes and the money in your bank within hours.

  • You won’t have to pay broker fees

Brokers will often charge you a fee for helping to find you a loan. The Money Advice Service urges borrowers not to use brokers as it is relatively easy to shop around for a payday loan yourself. Comparison sites and lenders’ websites are required by law to present clear information, which should mean that making a decision on which lender to use is straightforward, even without the help of a broker.

  • You won’t have to sign up 

Some brokers will ask borrowers to sign up with them, which involves taking bank account details and charging for services, whether required or not. You’ll need to cancel within 14 days of signing up and the broker needs to give you your money back within 30 days, under FCA rules.

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

What are the advantages of using a payday loan broker?

  • Save time 

With a broker, you may save hours on the internet or calling different providers looking for the best deals or filling out separate application forms. When it comes to payday lending, customers are looking for cash quickly and hassle-free

  • They do the investigation for you

The job of a broker is to find a lender that’s suitable to your needs. Some brokers are more legitimate than others, and some have a pool of entrusted lenders they can choose from. Often using a broker provides peace of mind that you’re going to get the best loan for when you need it most.

  • More options available

A short term loan broker will often be able to provide you with several different products to match your needs and requirements. whether you require short term loans or loans before payday. For example, some customers are most concerned with the lowest interest rate available, whilst others are more interested in where they can borrow the largest amount.

What should I know about using payday loan brokers?

On top of the costs and potential delays in your application, some other problems could come up with using a broker over a direct lender. In some cases, brokers may not make it clear to visitors to their websites that they are not direct lenders and can not lend money themselves. Borrowers have been known to fill in forms, assuming they are applying for the loan, only to find out later that they were simply handing their details over to a broker, who then charges them a fee. In some of these cases, prospective borrowers paid several fees to their broker and still didn’t take out a loan. 

There have also been reports of brokers operating despite not being registered or authorised by the Financial Conduct Authority (FCA). This means they do not have to comply with basic regulations that protect consumers using businesses in the financial services industry.

Another issue with opting for a broker, rather than a direct lender, is that brokers will often run applications through several lenders on your behalf, in bid to find one that will approve you for credit. However, running this many credit checks on an individual could be detrimental to their credit score, especially if they are turned down multiple times. 

It is usually a much better idea to carry out some research yourself, by checking a lender’s FAQs and product information, as well as their eligibility criteria, FCA-registration status and responsible lending practices, and applying directly for your loan. This way, you will receive a decision quickly and could have the emergency funding you need in your account the same day.

FCA rules and credit brokers

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

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

This must be provided before they take any payment details from you or charge you any fees. Also, according to the Consumer Credit Act, brokers have to refund your entire fee, aside from £5, if they have failed to find you a suitable loan within six months.

Types of payday loans direct lenders offer

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

Traditional payday loans

This type of short-term loan must be paid back in a single lump sum on your next payday. Traditional payday loans can be appropriate for borrowers who are confident that they have a generous payday on the horizon, which will allow them to repay what is owed, plus interest, and they will still have enough money to see them through until the following payday.

However, these types of payday loans can lead to financial problems if borrowers get into a cycle of borrowing every month just to make ends meet. 

Instalment loans

Instalment loans became more popular after the FCA introduced tighter regulations of the payday loans industry a few years back. This type of short-term loan allows borrowers to repay the amount owed over several months, in instalments. This can help people avoid a cycle of debt as it spreads the cost out. However, more money may be payable in interest charges if the loan is repaid over a longer period.

Lines of credit

A line of credit is a type of loan available to you on request, up to a limit, but you are 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.  

Types of payday loans direct lenders offer

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

Traditional payday loans

This type of short-term loan must be paid back in a single lump sum on your next payday. Traditional payday loans can be appropriate for borrowers who are confident that they have a generous payday on the horizon, which will allow them to repay what is owed, plus interest, and they will still have enough money to see them through until the following payday.

However, these types of payday loans can lead to financial problems if borrowers get into a cycle of borrowing every month just to make ends meet. 

Whether you use a broker or deal with a lender directly is your decision, but FCA regulations and the ease with which we can all compare financial products online these days makes shopping around for the right loan quick and easy, so why pay the extra?

Looking for a direct lender loan on a realistic payback schedule?

Warning: Late repayments can cause you serious money problems. For help, go to moneyadviceservice.org.uk

Representative Example: Borrow £400 for 4 months, four monthly repayments of £197.48. Total repayment £597.48, interest rate p.a. (fixed) 255.5%. Representative APR 939.5%. Compare Moneyboat loans.

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