I’m often asked what the difference is between between direct lenders, online loan brokers and loan comparison websites. Here, I’ll quickly explain what each of them are, how they differ, and how using an alternative to a direct lender could enhance your loan search.
What are direct lenders?
Direct lenders that affiliate with both comparison sites and brokers tend to be short-term lenders (also known as payday lenders). They lend money, but they’re not banks, just firms authorised by the Financial Conduct Authority (FCA) to provide consumer credit. In the UK, the big brands include Wonga, QuickQuid, 118118 Money and Sunny Loans.
Why use online loan brokers and loan comparison websites instead of a direct lender?
Neither comparison websites or online loan brokers are lenders – instead, they are what is know as an ‘introducer’ (or intermediary). These firms are also authorised by the FCA but only for the function of introducing borrowers to lenders. In both cases, they get paid by the lender for the introduction, which means that the service is usually free for customers.
How online loan brokers work
Online loan brokers (or credit brokers) are an alternative to direct lenders. They give you access to multiple lenders in one place and provide a ‘done for you’ service. You simply apply with them and they submit your application to suitable lenders on your behalf. You’ll get an instant decision, and if you receive an offer it’s just case of completing the loan agreement on the lenders website.
You benefit from not having to make multiple applications — nor do you need to worry about finding the right lender for your circumstances. The downside is that you have no say in which lender you are paired with, but as the offer is a no obligation quote, you don’t have to accept it if you don’t think it is right for you.
There are a couple of further benefits:
- You are only credit checked once you accept a lenders offer, in which case, they’re obliged to carry out appropriate checks.
- Because your application is submitted to a number of lenders, approval rates can be much higher that applying with an individual lender.
How loan comparison sites work
Comparison websites bring together and organise information from a number of lenders so that you can easily compare loan products in one place. Typically, comparison data includes: loan amounts and terms, interest rates, example costs and application criteria. More sophisticated sites might also provide actual side-by-side cost comparisons for the specific loan you’re looking for, and credit search facilities which indicate the likelihood of being accepted for a particular loan.
You benefit from not having to shop around in various places, but you will need to follow up the advice yourself and apply with each lender individually.
Should you use brokers, comparison sites or direct lenders?
Should you use brokers, comparison sites or direct lenders? There’s no one right answer — it’s down to whatever suits your individual needs best. However, in many cases, good brokers and comparison sites can save you significant time and help you find the loan you need faster.