Brokers offer services to help people find credit (for example a payday loan), by comparing the market and introducing you to a company that can offer you a deal.
A lender, on the other hand, is an individual or an institution who will approve and finance your loan.
In short, the two offer very different services. A broker essentially acts as the intermediary by helping consumers identify the best lender for their situation, while a direct lender decides whether you qualify for the loan and, if you do, hands over the check.
Lender vs Broker
- There are approximately 23,000 payday lenders in the U.S., almost twice the number of McDonald’s restaurants.
- There are 12,418 Loan Brokers businesses in the US as of 2022, an increase of 1.8% from 2021.
- The market size, measured by revenue, of the Check Cashing & Payday Loan Services industry is $19.1bn in 2022.
Difference Between Lender and Broker
Borrowing Money Using a Broker
Brokers will work well for people who want to try to discover the ideal loan for them but don’t want the hassle of finding it themselves. The broker acts like a middle man, reviewing your requirements and considering different lenders to find the most suitable loan for you.
Brokers may charge a fee to do the work of finding you a loan whereas others won’t. They will receive a commission paid to them by the lender instead.
The way Dime Alley operates is through the latter. No fee is charged to the borrower for matching them with a lender. Instead, our lenders give us a commission for our services.
Brokers are required to disclose upfront their fees and the terms of payment. They must clearly explain the features and terms and conditions of any loan they select for you, including when you’ll be expected to make repayments and how much you’ll need to pay.
Brokers also must explain the term, the interest rate, the total repayment amount and APR charged. They are also required to disclose any commission they may receive from lenders.
Borrowing Money Directly From a Lender
A direct lender, is a type of loan provider that deals directly with the loan applicant; what this means is that the company that you apply to for the loan, will be the same company that deposits the funds to you, and who you will enter into a legal credit agreement with.
The clue is in the name; a direct lender will lend money directly to you, without any other parties being involved in the process.
Each lender will require you to complete a loan application providing information about your personal circumstances as well as details about your financial circumstances including income and expenditure.
On completion of the application, the lender will conduct an affordability and creditworthiness assessment to establish if the loan would be affordable, sustainable and suitable for you throughout the loan term.
What are the Advantages of Using a Broker?
Firstly, you’ll have access to multiple lenders, which gives you a good idea of how multiple lenders will qualify you. This can give you more flexibility, especially if your circumstances mean that you don’t fit into a category typically recognized by lenders.
Secondly, a broker will review your personal financial situation in order to better understand your requirements. By doing so, a broker, like Dime Alley can help you to find a loan to suit your needs.
Additionally, using a broker avoids wasting the time that it takes to shop around for different loans from the thousands of lenders that could be available to you. The broker will do all the market assessment for you as part of their service.
Lastly, direct lenders have their own underwriting and loan terms. If there are problems with your application that they cannot overcome, then your loan application could be denied. If this happens, you’ll have to start a new application with a new lender. Conversely, with a broker, you only have to make one application and it’ll be reviewed by a number of different lenders.