The first things you need to know before shopping for a loan are the differences between direct vs indirect lenders and the importance of using a licensed lender.
There are enough loan features out there to leave anyone confused, but did you know that there are also different kinds of lenders? It's important to know the differences between licensed and unlicensed lenders as well as direct and indirect lenders. That way you can shop for the right loan product and the right lender.
What are Licensed Lenders?
Licensed lenders are lenders with a license from the federal and state government to lend money.
Licensed lenders have to follow both state and federal government requirements. If a lender is licensed, then you know they follow important regulations to keep their borrowers safe.
How Do Lenders Get Licensed?
To get a license, lending companies need to meet specific requirements, apply and get approved, and keep their services up to date with state and federal regulations.
Lenders apply for this license with the Nationwide Mortgage Licensing System (NMLS), the Department of Business Oversight (DBO), or the Residential Mortgage Lender License (RML).
To meet the strict approval process's requirements lenders need the following:
- A detailed business plan
- Certificates of authority
- Organizational charts
- Financing requirements
- Background checks for everyone involved in the lending
- Application fees ranging around $400
- Surety bonds
Lenders who specialize in dealing with mortgage loans have added special requirements like getting approval from the following organizations:
- Federal Housing Administration (FHA)
- Veterans Administration (VA)
- Farmers Home Administration (FmHA)
- Government National Mortgage Association (Ginnie Mae)
- Federal National Mortgage Association (Fannie Mae)
- Federal Home Loan Mortgage Corporation (Freddie Mac)
Licensed lenders also have to deal with regular state and federal audits that routinely make sure licensed lenders are following all of their proper guidelines. This means they have to keep very detailed and organized financial statements and documents.
When a lender is licensed, you know as a borrower that the lender is legitimate, professional, and fair.
Direct Lenders vs Indirect Lenders
Like with all lending options, there are pros and cons to both direct and indirect lenders.
Direct lenders offer loans directly to the borrower. Some examples of direct lenders include banks, credit unions, and financial institutions like Check City. By using a direct lender instead of an indirect lender, a loan borrower can apply for a loan and receive loan funds all with the same company.
This means that the same company they apply with is the company that funds their loan. Indirect lenders will instead let you apply with them, but another company will be the actual loan funder.
This includes payday loans online, bad credit payday loans, personal loans, cash loans, and more.
- They often have lower interest rates and payments than indirect lenders do. They also often come with better payment plan options because they can offer more flexibility since they are the actual lender.
- Customers often experience less pressure from direct lenders because direct lenders don't have to make loan sales for other lenders the way indirect lenders do.
- You also won't have to deal with loan negotiations that can get messy and complicated with a direct lender. Everything is just written out clearly ahead of time so you know the kind of loan you are signing up for before you even apply.
- Your private and personal information is also more protected with a direct lender since they won't send your information out to multiple loan options. Instead, direct lenders are the loan option and you only have to deal with them.
Indirect lenders offer loans indirectly through a third party. Another term for indirect loans and indirect lenders is dealer financing.
This is because working with indirect lenders is like going to a loan dealership where lots of different loans are available and a salesperson is going to try and sell you a specific one.
- At an indirect lender, borrowers apply for a loan with the indirect lender, who then gives that application to many other third-party lenders in order to get a client their loan.
- They have the interest of many different lenders to take their attention away from you and your needs as a borrower.
- Payments and interest rates for indirect loans are often higher because you're paying for the extra work of the loan intermediaries and the actual lender.
- Your creditworthiness will be a higher priority to get a loan with an indirect lender since indirect loans are higher-risk loans than direct loans.
- Borrowers who seek indirect lenders are often stumped on what lender to use and thus seek the help of a loan intermediary.
Direct Lender Loans
A direct lender loan is the best type of loan because you'll be dealing directly with the lender instead of with a third-party loan intermediary.
A direct lender loan is also more likely to get you better interest rates, better payment options, more flexible loans, more personal customer service, and more transparent loan terms.
Direct Lender Installment Loans
Direct lenders who offer installment loans are more likely to approve loans for borrowers with bad credit.
Because they have a direct relationship with the borrower, they can offer other forms of loan security. That way, borrowers with bad credit still have loan options available to them too.
Payday Loans from Direct Lenders
Payday loans are a type of loan designed to help borrowers get to their next paycheck sooner.
Payday loans are a quick and small loan designed to be paid off quickly. The purpose of a payday loan is to give customers quick, emergency finance options for when they need them most.
Borrowers are guaranteed to get approved for a payday loan much faster with a direct lender and with payday loans a speedy approval and funding process is essential to getting customers the funds they need right when they need them.
Check City is a Licensed Direct Lender
Is Check City a licensed lender? Yes! Is Check City a direct lender? Yes!
Since Check City is a direct lender you can take all your loan questions and concerns to us directly. You can also get some of our loans as quickly as the same day with direct deposit or by coming into your nearest Check City Store.
You can take a look at Check City's lending licensing by visiting our Responsible Lending Statement Page or our State Licensed Lender Page. Because Check City is a licensed lender we have to meet all the important requirements set to keep our lending secure and safe. And we're glad to do it!