Cashfloat, the independent short-term loan provider, has over a decade of expertise and operates within a responsible lending framework to ensure all approved loans are affordable.
The firm has noted that, in many cases, applicants are unsure what a direct lender is or how that differs from a broker, a loan comparison site, or a third-party lending platform.
As part of ongoing efforts to improve financial literacy and consumer education on short-term borrowing and credit products, the company has created a guide to clarify what applicants can expect when borrowing from a direct lender and to highlight the contrasts between this and other options.
Direct Lending Explained: Different Borrowing Solutions in the UK
Direct lenders are loan providers who communicate directly with applicants and manage processes like affordability assessments and approvals in-house, without relying on third-party organisations.
Indirect lending means the opposite, and a consumer might be dealing with a person or organisation who is not the same provider extending the line of credit or who will transfer the funds if the loan application is successful.
Although it should always be clear who the loan provider is, there are situations where consumers do not know that a third party is facilitating their loan, or that they are never actually interacting with the organisation providing the financing.
This can occur in scenarios where a lender underwrites a loan on behalf of an intermediary who markets or sells the product and claims a commission or other payment in return for introducing the business to the lender.
Examples of third-party or indirect lending include when homeowners negotiate their mortgage through a broker, who might be independent or might be able to offer a limited number of products offered by the brands they represent. Others relate to loan comparison sites with links to loan products, and car financing products which aren’t offered directly by the dealership.
Potential Cost Implications Associated With Indirect Borrowing
The primary issue with indirect borrowing is that additional parties are involved in the loan agreement, each of whom will receive some form of remuneration for their services. Brokers usually earn commissions but may also be employed to represent a group of lending brands, which means they are not ‘whole-of-market’ and therefore can only sell the loan products they have access to.
Loan comparison sites also earn income, and although they can be useful tools for borrowers to compare products, they can only feature lending products and providers who choose to advertise on their platforms.
Therefore, consumers using a broker, online lending website, or loan comparison platform may not be seeing all the options available, may not have access to the most competitive loans, and will typically be paying more, usually rolled up in application or administration charges, for the same amount of borrowing.
Benefits of Borrowing From an Independent Direct Lender
Direct lenders do not outsource any aspect of the loan assessment or management process to another company, ensuring that borrowers are not expected to pay commissions and can liaise with the organisation directly.
In almost all cases, the borrower’s information is held only by the lender. Data is never shared with a third party unless there is a reason to believe it may be in the applicant’s interests and they have given express permission.
This delivers benefits in terms of data security and privacy and means that direct lenders have the flexibility to set more competitive loan terms without needing to build in additional charges to cover commissions or third-party fees.
For short-term borrowers, the fact that loan applications are processed in-house can also mean they receive faster decisions because their information will be assessed there and then. If successful, consumers will find that they receive their funds significantly quicker, as finances are transferred straight from the source to the borrower.
While all lenders must comply with the regulations and rules enforced by the Financial Conduct Authority (FCA), borrowing directly provides consumers with greater transparency about who they are borrowing from. They can visit the FCA website to verify the company’s credentials using either the company name or FCA authorisation number, without having any doubts about whether their selected loan provider is legitimate.
The Process of Applying for a Direct Short-Term Loan Product
Direct lenders provide comprehensive tools and resources to guide consumers through the loan application process, including loan calculators and affordability checkers that can indicate whether the requested loan is likely to be approved before they submit an application.
The advantage is that borrowers who are not eligible for a loan, often due to affordability issues, can revise their application or review the impacts of extending the term, seeing how the total repayable value and monthly repayments will change, and checking whether this is then more affordable.
Initial checks involve soft credit searches, which will not appear on the applicant’s credit file. They are, therefore, a safe way to find out how manageable a loan will be, without the problems associated with multiple hard credit checks, which can suggest that a loan applicant is in financial difficulty.
Should applicants choose to proceed, they can submit their final application, including information about their employment, income, outgoings, and other debts, where relevant, which the lender will review confidentially to decide whether they are in a position to approve the loan.
Depending on the circumstances, applicants will normally receive a decision within 30 minutes, and successful loans will be funded within an hour. However, this may take longer if additional checks are needed or if the lender needs to confirm the accuracy of the information included in the application.
Guidance for UK Borrowers Choosing a Loan Provider
The advice for anybody intending to apply for a loan remains to be clear about who the lender is, whether this is a direct or indirect lender, and to ensure consumers know exactly what they will be paying, how long the loan term will last, and what it will cost.
Borrowers are also advised to verify that a lender is a credible, FCA-authorised firm and to review the terms of a loan product, such as early-repayment penalties, which could make a loan that seems competitive less beneficial than it may appear.
