You wouldn’t ask a carpenter to plumb in your new dishwasher or get your electrician to make you a new wardrobe – at least we hope you wouldn’t! Finding the right person for a job is often key to success – and can lead to a long and happy relationship.

The same is true with choosing the right lender. Whatever your reason for wanting to borrow money, there are many options available so it can be daunting and downright confusing when it comes to narrowing the best lender for you.

But don’t fear – we’re here to look at the differences between banks, brokers and direct lenders to help you make the right decision about who to borrow from.

What are my options?

The ‘right’ choice of lender for you will depend on a number of factors – your financial needs, credit history/worthiness and the level of service you need, for example. Think about what’s important to you. Are you looking for the lowest possible interest rate or is quick access to funds more important? Would you rather deal directly with lenders or have a broker handle the legwork? Every lending option comes with its own pros and cons but before delving into those, it’s really important you understand the basic distinctions:

  • Banks: Traditional banks offer a variety of financial services including loans, credit cards and mortgages but can have strict lending criteria. But if you have a good credit history, banks can provide competitive interest rates.
  • Brokers: These act as an intermediary between borrowers and lenders. Brokers work with a number of lenders to help find the best product to meet your needs, and they usually charge a fee or receive a commission payment from the lender.
  • Direct Lenders: These are financial institutions such as online lenders, finance companies and asset-based lenders that assess your financial status and creditworthiness and then lend money direct to you without involving any intermediaries.

Let’s look at those in a little more detail.

Banks:

These are often considered a traditional lender.

The pros:

  • Can offer competitive interest rates: Especially for those with a good credit history and an existing relationship with the bank.
  • Wide range of services: As well as a loan, banks can offer investment products, mortgages and savings accounts, making them a one-stop shop.

The cons:

  • Strict lending criteria: If you have an unstable credit history or lack suitable collateral, it may be difficult to qualify for a bank loan.
  • Slow approval process: Paperwork and multiple checks can sometimes draw out the loan application process, especially for mortgages or large loans.

Who are bank loans best for?

Those who value a long-standing, traditional lender will benefit from a bank loan, as well as those with strong credit histories or existing established relationships with their bank.

Brokers:

These can take the legwork out of finding a loan that works for you. By working with a range of lenders, brokers will compare offers and negotiate terms on your behalf, simplifying the whole process.

The pros:

  • Access to multiple lenders: The more lenders you have access to, the greater the chance of finding a loan that most suitably fits your specific needs and financial situation.
  • Tailored advice: Brokers offer personalised advice which can help match you with the right lender based on your financial goals, credit history and desired terms.
  • Timesaving: Because the broker researches and narrows down the options for you to consider, it can save you time.

The cons:

  • Broker fees: You may be charged a fee for securing your loan through a broker or
  • Limited range of lenders: Brokers don’t necessarily have access to every loan provider so you could miss out on some offerings.

Who are brokers best for?

If you’re in a unique financial situation – like freelance workers or people with lower credit scores, brokers may be a good option. They’re also good for people looking for a fast and hassle-free loan comparison process.

Direct Lenders:

These are institutions that lend money direct to borrowers without any intermediaries.

The pros:

  • Faster approval times: Lending can sometimes be instant or next-day which may help if you need quick access to funds.
  • Simplified application: Because some direct lenders have online application forms you can apply for a loan without visiting a branch.

The cons:

  • Customer support: On-line lenders do’nt offer face to face support.
  • Limited services: Direct lenders may not offer as comprehensive a range of financial services.

Who are direct lenders best for?

If you need quick access to funds, want to speed up the application process or struggle to qualify for traditional bank loans, direct lenders may be a suitable option for you.

Conclusion:

Choosing the right lender is a crucial part of securing a loan that works for your particular situation. But it’s critical that you understand the differences between the lending options available from different lenders to ensure you’re equipped to make a decision that fits your goals, budget and time constraints.

Need Help?

Contact the team at Close Finance to get expert advice about your lending requirements.