When it comes to borrowing money, you have the right to choose between brokers and lenders. The difference between lenders and brokers is that the former have the authority to lend you money, while the latter work closely with lenders and act as mediators to connect you to a lender. You can directly contact a lender if you want to borrow money. However, directly approaching them means researching extensively to choose a registered and legitimate lender offering the best deal.
Those who do not want to get into the hassle of paperwork or who find choosing an appropriate lender a time-consuming process usually contact brokers who evaluate your financial circumstances, do the paperwork on your behalf, and introduce you to one of the lenders on their panel to help you obtain the most affordable deal.
Whether you borrow money directly from a lender or through a broker, you will have certain advantages and drawbacks. This blog is aimed at discussing the disadvantages of getting loans, especially bad credit loans from brokers.
What are bad credit loans?
Poro credit loans are aimed at subprime borrowers. When you apply for a loan despite a bad credit rating, it is called a bad credit loan. Subprime loans carry high interest rates because the default risk is too high.
Bad credit loans are generally small loans. The maximum repayment period of these loans is up to a year. If you borrow a small amount of money, the loan will be due within a period of a month. You will be required to discharge your debt in one fell swoop. Payday loans are an example of bad credit loans.
Some lenders can also provide you with extremely bad credit loans in the UK from a direct lender. These loans could be even more expensive than subprime loans, as the risk of default is too high. The lower the credit rating, the higher the interest rate will be.
Why is it a bad idea to get bad credit loans through brokers?
Some assume that brokers are a better choice than lenders because they will arrange a suitable lender for you and also walk you through the entire loan process. This is especially ideal for those who are borrowing money for the first time.
There are various unregistered direct lenders who sell financial products unethically. They charge exorbitant interest rates in order to make money. If you do not check the authenticity and registration of a lender, you will most likely end up with an ongoing cycle of debt. In order to abate the risk of being tapped by an unregistered lender, borrowers often contact brokers, but they have drawbacks, too. Choosing a broker might not always be a great deal because of the following reasons:
1. Brokerage fees
Brokers are convenient than lenders because you do not have to do paperwork. They will do it on your behalf. All you have to do is provide them with specific documents such as your bank statement, pay slips, and the like.
They will also help introduce you to a lender whose approval criteria match your requirements, but this cannot all be done without any cost. A broker will charge you fees in order to provide you with a service.
While brokers say that they take fees only from lenders whom you have picked to process your loan, the fact is that lenders pass those fees onto you. These one-off fees actually become recurring in nature because it is added to the loan cost. This will make your loan much more expensive than loans directly applied for from direct lenders.
2. Limited access to lenders
Brokers usually claim that they have a large panel of lenders, but this is a strategy to attract gullible borrowers. The fact is that brokers do not work with all lenders. There are some lenders who work independently. It is likely that they have a much better and affordable deal for you than those whom you contact through the agency of a broker.
You should try to research the market on your own and compare interest rates. Look for the registration and then decide which lender fits your financial condition. Contacting a lender directly is a better choice than contacting a broker for a bad credit loan.
3. No guarantee of the best deal
Some people are under the impression that brokers always help you get the best deal because they will choose a lender whose approval criteria match your financial circumstances. There is no guarantee that the deal you have been offered is actually affordable. If you try to compare that with others, you might find it expensive.
A broker contacts one or two lenders to have your application reviewed because lenders will run a hard check to decide your affordability. It means your credit score will be dropped each time hard inquiries are made, and yet there is no possibility that you would get approval from a direct lender.
4. You will fail to make the most of your relationship with lenders
When you borrow money from a direct lender, you have a chance to establish a good relationship with them. Next time, when you borrow money, there is a possibility that they will run a soft check, especially if the loan amount is so small. In fact, they would be willing to offer you slightly lower interest rates.
If you apply for a loan through a broker, you would be able to establish a personal connection with your lender, and it is likely that you would miss several opportunities.
The final word
If you are looking to take out a bad credit loan, you should always try to apply for them from a direct lender. if you get these loans through a broker, you would end up getting very expensive deal. There is no guarantee that lenders that are linked with your broker will approbate your application. Because brokerage fees are added, you will end up paying a lot more money in total. Further, you will fail to make the most of your relationship with your lender if you choose a broker.
