Nobody likes to get the runaround - not when your finances are on the line. In an unexpected emergency that requires you to research the process of applying for a personal loan or line of credit, you should expect a straightforward and simple answer to your problem.
As such, online direct lenders pare down those involved with your loan to two parties: you and the direct lender. Let’s learn more about them today.
What Are Online Loans Direct Lenders?
Sometimes, it’s easier to define something by what it is not. A direct lender is not an affiliate, broker, or lead provider that matches you with an online loan.
So, what does this mean?
A direct lender is your only contact throughout the whole borrowing process. It disburses and services your online line of credit or loan.
This means you’re dealing with them directly for your online line of credit or loan— which is how they got the name.
You’ll generally interact with just one lender for the following steps:
- Applying for your personal loan or line of credit
- Receiving your funds, if approved
- Paying back your personal loan or line of credit
With online direct lenders, most of these steps will happen online.
How Do Online Loans with Direct Lenders Work?
Generally, it all starts with a financial institution’s website. That’s where you’ll find an online application for a personal loan or line of credit.
This application is a way for your financial institution to get to know you better. More specifically, it helps them determine if you may reasonably repay what you want to borrow. They may make this decision by checking your credit, as well as your income and pay schedule, but the specifics in this case will depend on the financial institution.
In many cases, a direct lender will verify the information you share before making a final lending decision. If you’re approved, you may receive your funds as early as the same business day.
You will most likely get these funds as a direct deposit in the bank account you provided in your initial application. You may also choose to authorize your direct lender as a payee, so it can make automatic scheduled withdrawals from the same account on your due date.
When you have to make these payments will depend on the type of online loan you take out.
Types of Online Loans Direct Lenders Provide
Online loans belong to a broad category of financial products. Almost any product falls under it, as long as it satisfies these basic criteria: you apply for, receive, and repay your loan online rather than at a storefront financial institution. There may also be certain components of this process that happen over the phone, depending on the lender.
This means they can be an option for personal emergencies and they may vary greatly in size and terms.
As for today, we’re focusing on online loans that may help you cover an unexpected emergency expense in your personal life. Let’s take a look at some examples below.
Payday Loans
Online payday loans are small-dollar, short-term loans that you receive and pay off in one lump sum, along with any applicable charges. Typically, you have until your next pay date to repay these loans, which is why they’re called payday loans.
Broadly speaking, payday loans provide lower amounts of money for a higher charge. The interest and/or fees that come with these types of loans are generally fairly high.[1]
Installment Loans
With an online installment loan, you also receive your loan amount in one lump sum, but you’ll pay it back over several payments. This spreads out your repayment over weeks, months, or possibly even years. The length of the term will depend on your financial institution and the type of loan.
Compared to payday loans, installment loans may vary greatly in size, use, and cost. How much you receive depends on the type of installment loan you’ve applied for. After all, a mortgage (which is one of the largest installment loans available) provides more money than a short-term installment loan designed to help cover unexpected emergency expenses.
Your credit history may also factor in the amount you receive and the charges you pay. While some installment loans may be just as costly as payday loans, others may offer a more affordable alternative.
Lines of Credit
Even a financial institution that offers you a personal line of credit may be an online personal loans direct lender. A personal line of credit is different from the other options in this list, as it’s an example of revolving credit.
Revolving credit is a product that provides funds with a withdrawal limit rather than as a fixed loan amount. You may use as much from this credit limit as you want as long as you have available credit and your account is in good standing. As you pay off what you use (plus any interest and/or fees), you may continue to withdraw up to this limit.
Cosigner Loans
Cosigner loans add some insurance to your financial institution that your debt would be paid. But instead of using a valuable asset, it requires another borrower waiting in the wings.
This other borrower acts as your backup, and is expected to be ready to pay your bills if you can’t. They’ll apply alongside with you, so it helps that you choose someone with strong credit.
A cosigner with a good borrowing history may increase your chances of being approved for a higher loan amount at lower rates. For more information on cosigners, check out a previous post where we answer the big question: what is a cosigner?
Secured Personal Loans
So far, the types of loans on this list can be classified as unsecured. This means that in order to be approved, you won’t need to provide any collateral. Secured personal loans on the other hand may offer flexible borrowing options at lower rates. The main catch is you must back it with collateral. This makes them a little different from the previous examples above, which are backed by your creditworthiness and/or your promise to repay.
Collateral adds security to your lender’s side of the arrangement because it acts as a fail-safe if you can’t repay your loan. You accept that your financial institution may take this asset as payment instead.
While the stakes may be high, there are some potential benefits to choosing secured personal loans. Namely, you may unlock a higher borrowing amount with lower rates.
Advantages of Getting Direct Loans Online
Your exact borrowing experience may vary by financial institution and product, but here are some of the potential benefits of working with online direct lenders.
1. Simple Comparison Shopping
Comparing the available rates and terms is a crucial step in the application process, but it can be a hassle if you have to visit individual lenders’ storefronts to find out this info.
With online direct lenders, you may compare as many financial institutions as you can open tabs in your browser. Just switch between them to see your options in real-time.
2. Simple Communication
You’ll generally only ever communicate with one point of contact, so it may be easier to keep yourself updated with your account information as well as your notifications and emails.
3. Convenient Experience
Most of the borrowing experience happens from your computer screen. There’s no need to travel to a storefront location for any reason. Not to apply. Not to pick up a check. And not to pay back what you owe. Direct lenders are your one-stop shop for borrowing money.
4. Quick Application Process
Online direct lenders may generally be able to make relatively quick decisions in-house without interference or delay. This may translate into speedier response times, which may deliver cash in your hands faster.
Things to be Aware of When Applying for Direct Loans Online
Again, every personal loan or line of credit may be different, but here are some things to be aware of when working with online direct lenders.
1. No Face-to-Face Interaction
For people who like to see someone when they speak with them, online loans may be challenging. Don’t be mistaken — you’ll speak with someone to verify your information, and a representative is generally available by phone whenever you have a question or concern. But this won’t be the same if you value in-person communication.
2. Application Processing Time
If you choose to apply for a secured personal or a cosigner loan, you may have to fill out more paperwork than what’s involved with a typical installment loan or line of credit.
Secured loan products add an extra step to verify your assets. Similarly, financial institutions will have to evaluate your cosigner’s creditworthiness in addition to yours.
Keep this in mind while you’re looking for loans and make sure you give yourself enough time.
3. Cost
A loan’s amount and terms may vary greatly between online direct lenders. How much you end up paying will depend on your choice of financial institution and financial product, and sometimes, your creditworthiness.
While some may be expensive, others may offer more affordable rates. This is why you should shop around before you apply for a personal loan or line of credit.
What to Keep in Mind When Evaluating Online Direct Lenders
Now that you have a little direct lender know-how under your belt, you have a big decision to make. If you think applying with a direct lender may be a good idea, here are some things to consider.
- Rates and terms. These impact the cost of borrowing, so you’ll want to know what they are before you apply.
- Credit impact. A financial institution may report your payments (or missed payments) to a credit bureau. If you frequently miss payments, this could negatively affect your credit score. On the other hand, timely payments may give you the opportunity to have a positive impact on your credit history. Because of this, make sure you’re aware of what will be reported before you apply.
- Overall experience. One of the biggest perks of choosing online loans direct lenders is their simplicity. Take the time to evaluate a financial institution’s process to confirm it’s convenient, fast, and secure.
- Your budget. If all the above checks out, you have one more thing to consider: your budget. This spending plan helps you organize your loan payments with your other financial obligations. Use it to make sure you don’t take on something unaffordable, so you may keep your financial goals moving forward.
Do Your Research Before Considering Direct Lenders Online
There are some things in life you should never settle for: your relationships, your career, and your lender.
When it comes to your finances, you owe it to yourself to find the best possible option. And there may be a variety of online loans direct lenders to choose from.
Give yourself the time to research what each of them brings to the table. See what’s available, and only apply if it’s something you can reasonably afford.
[1] https://www.consumerfinance.gov/ask-cfpb/what-is-a-payday-loan-en-1567/
