There is a lot to understand when you are taking out money.
Yes, in times of need, it is the essential thing that can help us. We can derive unique benefits from it. But, at the same time, being careful of the source matters a lot.
Banks and direct lenders (for this post, payday lenders) do differ from each other in many ways. That’s okay because both these commercial institutions have their kind of business to operate.
Whether or not you are comfortable with the loans they offer entirely depends on you. To take a firmer decision and stick to it, you need to know what bank loans and payday lenders can provide you with, especially and specifically. Consider this post to be at your service with that.
Traditional Bank Loans Vs. Payday Lenders: What Do We Need to Know?
Well, there are two kinds of financial institutions involved here. One is the traditional banks or private banks, and the other is a direct lender.
To find out which one will suit our requirements the best, we need to know what they offer us and in what ways.
Let’s start with the traditional banks first.
Banks are financial institutions which can get you multiple numbers of loan options. However, a bank specialises in other kinds of financial services too. But the loan part in banks is primarily linear.
Bank loans are basic loans either offered in an unsecured way (personal loan) or in a secured manner. You can understand that a secured loan means a loan against an asset such as your home, car, or other assets. Bank loans are relatively simple to understand and come with interest rates, which you pay monthly.
On the other hand, a direct lender is a professional specializing in lending services only. The most definitive aspect of direct lending service is that it does not include any intermediary such as brokers. You speak with the direct lender ‘directly’ and get yourself a personal loan. When you are looking for guaranteed acceptance loans, direct lenders can help you better because they primarily focus on the acceptance part.
They work with personal loans or unsecured loans where you do not have to worry about collateral. However, secured loans are also an option with many direct lending practices.
Are there any considerable differences between traditional banks and direct lending services? Well, there are because this blog wouldn’t have otherwise been created. But, before we learn their differences, isn’t it a little necessary to know what similarities they have?
Let’s know them shortly, and then we will get to the main topic of this post pretty soon!
- Both banks and direct lenders charge interest rates for the loans they offer.
- Both offer a variety of loan products.
- Banks and direct lenders will check your credit details. However, if you proceed to introspect the credit check procedures further, there are differences.
- Collateral might be required with some secured loan options.
With these similarities follows many differences as well. You are interested in learning about them. Then follow the table furnished below:
| Traits | Traditional Banks | Direct Lenders or Payday Loan Lenders |
| Loan Approval | The approval time and loan disbursal in banks may take a little time. It is because banks also have to manage other responsibilities alongside managing their lending departments. | Direct lender loan approval is easy and fast. The application form is paperless and can be filled out online in minimal detail. Hence, borrowers get guaranteed acceptance in minutes, and the money is disbursed within a day. |
| Interest Rates | Banks might offer you low-interest rates. | Payday lenders may not offer you a low-interest rate. But, the interest rates can still be affordable because a borrower can choose from various rates suitable to his or her income. |
| Loan Type | Banks don’t always offer generic payday loans. You can get a more generalised loan option. | Direct lenders specialise in offering payday loans, unemployed loans and many other loan options. |
| Term Length | A borrower can get a long-term loan option easily from the bank. But it is also true that few banks may not provide short-term loan options. | A payday loan is a short-term loan itself. You can choose to pay it within a month using your salary or extend the period to a few months or a year. |
| Credit Check Norms | A bank focuses more on helping borrowers with a good or high credit score. You may have to wait a long time to qualify for a loan with bad credit. | Direct lenders pay no attention to a low or very low credit score if you present an official statement of repayment. |
| Deposit Requirements | Banks may accept deposits from the borrower by lending money to him or her. | Payday or direct lenders may not always need a deposit from the borrowers. They will mainly check your income statement to verify if you can afford the loan. |
- Which One Do You Need to Choose?
Now that you know how banks and payday lenders work, it might be easier for you to go for a loan option. Think about the sort of requirement you have. Evaluate your needs. Find out where you want to spend money. Analyse the facilities to understand your preferred loan provider. This will get you to a more clarified state of borrowing.
Borrowing needs and loan affordability go hand-in-hand to make users understand a loan option better. When choosing a direct lender, think of your income capabilities. Let’s say you took out a payday loan in the UK for bad credit with no guarantor. The direct lender will simply keep a bad credit score or the need for a guarantor if you can manage to repay the loan amounts in instalments using your income.
If you are okay with making deposits and have specific borrowing needs, which a bank can serve the most, then you are welcome to choose.
To Conclude
Just keep in mind that your borrowing requirements and repayment terms must be determined before you borrow. Even if you take out a loan at the time of an emergency, you can still decide on repayment a few days later, as both institutions mentioned here won’t be charging you for repayment immediately.
Make your choice. Take a decision. And always communicate with your lender to clear doubts and other assistance (whichever it may be).
Jessica Rodz is the Senior Content Writer at Cashfacts. She has a long career in the field of content writing and editing. Jessica has the expertise in the UK lending marketplace where she has worked with 7 different lending organisations and acquired many responsibilities from preparing loan deals and writing blogs for their websites.
At Cashfacts, Jessica is managing a team of experienced loan experts and doing a major contribution in guiding the loan seekers via well-researched blogs. She has done graduation in Business (Finance) and now currently doing research papers on the UK financial sector.
