What Is the Difference Between a Broker and a Lender?

by Startacus Admin

If you are looking to borrow money, a quick online search may have brought up several different options that include both loan brokers and direct lenders. But what is the difference between the two, and is one better than the other? Brokers do not lend you the money themselves, but rather work with a panel of trusted lenders that they can suggest to you as potential lender candidates to apply to, using the details that you provide. On the other hand, a direct lender works directly with you to provide you with the loan, and you will make repayments to them. 

How Do Brokers Work?

A loan broker works in a very similar way to the comparison sites that we all tend to use from time to time for financial products. When you apply for a loan through a broker, you will be asked for a range of personal details such as your name and address, date of birth, contact details, address details, employment details, income and expenses. The broker will then use this information to perform a soft search, enabling them to find lenders on their panel who pre-approve your application. 

For example, one UK broker is Payday UK; this broker works with a panel of regulated lenders to help clients find payday loans, debt consolidation loans, and once entered your details into the site, you will be presented with a range of direct lenders who are willing to provide your loan. 

Compare Your Options

Using a loan broker is an option if you want to compare the various loan products that you might be eligible for. There are several different loan brokers to choose from and typically, they will specialise in a certain type of loans, such as bad credit loans or direct payday loans. When you apply through a broker, you will be presented with a range of different lenders who have already pre-approved your application, which can help to reduce the risk of being rejected for a loan you may apply for if you are not eligible. The broker will use your details to find lenders that are willing to lend the amount you have requested to you, therefore putting you in a stronger position to find the right option for you. 

Save Time

Another difference between applying through a broker and a direct lender is that it allows you to save time. Rather than going to separate direct lenders’ websites, making your application and hoping for the best, using a broker means that you can simply enter your details and see all your options together at once. You may want to work with several different brokers so that you have as many different options as possible to consider. 

Protect Your Credit Rating

The difference between using a broker and a direct lender is that when you apply through a broker, seeing the loans that you are eligible for will not usually affect your credit score. Usually, a ‘soft search’ is performed, to allow the broker to find lenders that are willing to accept you. This does not have the same negative impact on your credit rating compared to applying directly to a lender, who will perform a ‘hard search’ before accepting or rejecting your application. If your application is rejected by the lender after performing a hard search, this can have a negative impact on your credit score and make it harder for you to get credit for the next few weeks or even longer. 

Find a More Suitable Loan

Brokers tend to work with an extensive panel of lenders, which allows them to find the most suitable loan for your needs and minimise the amount of research that you will need to do in order to figure this out. When you apply through a broker, they will be able to take the details that you have provided them with to figure out whether you are a more suitable candidate for a guarantor loan, a bad credit loan, or a payday loan. 

Along with putting you in with a better chance of being accepted, this also means that you are less likely to make the wrong decision when it comes to the loan product that you choose. You might also end up learning about different types of loans that you did not realise were available to you before you applied through the broker, such as loans for poor credit to help you consolidate your existing debts. 

If you want to borrow money, you can either go directly to the lender or apply through a broker. Using a broker has many benefits including allowing you to explore more options, and find a loan that is more suitable for your needs and circumstances. 

Subscribe to our newsletter

If you would like to receive our startup themed newsletter, full of the latest startup opportunities, events, news, stories, tips and advice, then sign up here.

• #finance

Published on: 1st September 2020