The market for installment loans provided by direct lenders has grown substantially after 2009. This is largely due to the aftermath of the 2008 US housing bubble forcing the banks to significantly decrease their lending movements. In response to that, all types of borrowers whose access to intermediate lending was cut turned to the services of installment loans direct lenders. Since then the market for direct lending is expanding with great momentum.
This process is now facilitated even more by digitalization, which in itself provides more and more people with the ability to apply online for installment loans by direct creditors. So, what exactly is the mechanism behind the process, and what are the factors we should consider before reaching out for such a loan?
Installment loan direct lender: definition
To put it simply, the financial system offers two options to those in need of financial assistance: indirect lending and direct lending. In the former case, the creditor issues a loan to the debtor through a financial intermediary. That intermediary could be a commercial bank, an investment bank, a brokerage house or a private-equity company. In direct lending, on the other hand, there is absolutely no intermediary between the lender and the borrower. This means that, instead of having to go through the exuberating process of communicating with intermediaries, the debtor has a much quicker way of passing and receiving information.
Secondly, and even more important for a lot of people, when you work with an installment loan direct lender, you have the benefit of knowing who exactly is the person or legal entity that is giving you the credit. When dealing with an intermediary in indirect lending, you cannot be fully sure of who is offering you the loan and correspondingly, you would be incapable of carrying out proper research even if you wanted to.
The faster communication, faster application process and the fact that when using direct lending you automatically save from the fees that intermediaries inevitably charge, installment loans direct lenders become an immensely attractive borrowing option for those with not so good credit history. As with every type of financial option that looks immensely attractive at first glance, there are a few catches that you should be aware of.
What you should know about installment loan direct lenders
First of all, no matter whether you use the services of a loan matching company or a direct lender, installment loans are costly and sometimes the expenses can exceed your initial expectation. There is a lot of negative backlash with regards to payday loans about their risky nature. However, there is a lot of discussion that installment loans is a solid and safe borrowing alternative.
Despite the fact that most installment loans direct lenders advertise their service as a one-time solution to a temporary financial predicament, the actual situation is a little bit different. Very much like payday loans, installment loans are marketed mainly to consumers who are experiencing money problems, or have a bad credit history. And there is a significant number of lenders who willingly exploit the weaknesses of that particular client base by pushing them into renewing their loans over and over again, sometimes driving the APRs (annual percentage rates) on the loan by more than 200 percent over the principal. And if that is not enough of a showcase of how sneaky this type of lending can be, ProPublica takes special notice of another deceptive practice of installment loans companies.
That is selling debtors unnecessary insurances which ultimately increase the loan’s APR. Reportedly, this happens because there are lenders who are conveniently forgetful in mentioning to the borrower that the offered insurance products are voluntary, and totally not a compulsory part of the loan package.
Therefore, a crucial thing to keep in mind when discussing payment terms with installment loans direct lenders is whether you will be servicing any fees on insurance products as part of your credit repayment. And because of the above mentioned high levels of interest rates charged on installment loans, another important preparatory step is to conduct proper research on as many direct lending companies as possible.
As they are not bound by any agreement with financial intermediaries, direct lenders have the freedom of setting whatever fees and rates they think are appropriate. As a result, there are many installment loan direct lending options that come at different prices. Good research is mandatory and that applies to both offline and online installment loans direct lenders.
Online Installment Loans Direct Lenders
The market for online installment loans provided by direct lenders is getting more popular. Although there are no lenders who can grant you instant approval or approval within minutes or hours for that matter, applying online can be a lot more convenient especially if you live in an area that lacks good direct lending companies.
Online installment loans direct lenders generally don’t demand a lot of paperwork as an application prerequisite. However, there are a few things that you should be ready to present. A copy of your photo ID, bank statement and a piece of mail that has your name and address on it. And if you have bad credit, do not worry.
Many online installment loans direct lenders accept applications with lower credit score, so this is not something that should necessarily stop you from applying. And finally, one of the biggest advantages of online services is that most of them offer a section where users can post reviews. In that way, you have the absolute freedom of familiarizing yourself not only with what the direct lenders are selling to you, but with what the people who have already used their service think.