A direct loan is a type of loan made between a lender and a borrower, without any third party involvement. Direct lenders include the government, banks, and other financial organizations.
When smaller banks and lenders don’t have enough funds to approve a certain loan application, they usually have to go through third-parties with more resources. With more parties involved, the cost of borrowing goes up, and you get a loan with more interest.
Different Types of Direct Loans
The term “direct loan” is mostly used for student loans. However, it can also reference any other lending without a middleman, such as mortgages, direct payday, and installment loans.
Because direct loans don’t have a middleman, they usually carry a lower interest rate than other loans. Besides being more affordable, direct loans are also generally faster, as they involve fewer parties and less paperwork.
Direct loans can come with other perks such as fixed interest rates or income-driven repayment plans where the payments are based on your salary so that your budget doesn’t suffer too much.
Federal student loans offer the most benefits, as the government wants to encourage people to pursue higher education.
What Are Direct Payday Loans?
If you are thinking about taking out a payday loan, you can go to a direct lender. Direct lenders offer loans without third-party brokers. Third-party brokers’ prime responsibility is to bring sellers and buyers together. Therefore, a broker is the facilitator between a buyer and a seller. A broker collects a borrower’s information and then tries to find the best offer for them, and in return, the broker takes a percentage of the loaned amount.
Payday loans are frequently used as a quick financial solution. When planned properly, payday loans provide a quick cash injection that helps out. If not planned properly, the consumer can end up in a cycle between borrowing and repaying.
Because of the potential issues with late payments, it is important to have a plan for repaying your loan, and to examine the interest rates of additional loan options.
What Are Direct Installment Loans?
You can get an installment loan from a direct lender. With this type of loan, you borrow a set amount of money that you then pay back with interest over a specified period.
Payments are usually made monthly, and since installment loans have longer terms, these payments generally don’t stretch a budget too much. Combined with the fact that installment loans typically carry a lower interest rates, and you can see why many people choose this type of loan. To get an even lower interest rate, borrowers can go directly to a lender rather than using a third-party broker.
What Are Direct Mortgage Loans?
When deciding to buy a house you have two options, you can either go to a direct lender or hire a mortgage broker who acts as an intermediary by helping you find the best lender and providing all the information about mortgage application.
Brokers are great for people who don’t have time to research different lenders and options, as a broker can do all the work, and then provide the necessary information. Brokers usually charge a certain percentage of the mortgage amount for their services.
Direct lenders are banks or financial institutions that decide whether you qualify for a loan and then issues the check if you do. You can always compare different lenders and choose the one that offers the best conditions. Going to a direct lender is usually a faster and cheaper option, as there is no middle man involved.