Direct lender loans are all small emergency loans available from online lenders. These loans are typically aimed at subprime borrowers who are not entertained elsewhere. Direct lender loans come with a small amount of money. Under no circumstances can they be more than £5,000. However, most of the lenders cap £2,500 because they are risky. Subprime borrowers have a reputation for making a default on their debt. Lenders are to bear huge risks because they do not have any collateral to repossess. When lenders do not have any means to cover their money back when you make a default, they charge high interest rates to mitigate their losses.
Direct lender loans are normally small loans. Even if your credit score is bad, the approval rate for these loans is quite high. The fact is that these loans have been designed for bad credit borrowers. Poor credit borrowers often struggle to get approval from banks and other financial institutions. They could come across some emergencies, too. They might be in a tight spot. What if they need an immediate injection of cash? Of course, you would turn to direct lenders. Unfortunately, banks do not entertain your application because of your abysmal credit history. Therefore, direct lender loans come in handy. Here is how these loans could provide you with financial assistance:
Direct lender loans do not require any guarantor
When your credit report is not stellar, lenders will perceive you a very risky borrower. they will likely assume that you will fall behind on the payment. After making a default, the cost of the debt will quickly accumulate. Most of the small loans are discharged in fell one swoop. If you fail to pay off your obligation, you will end up rolling over the loan. As you keep rolling it over, the amount of debt will continue to hike. In order to mitigate the risk involved in lending you money, lenders require you to arrange a guarantor with a good credit history.
This mitigates their risk because they can call on the guarantor to discharge the obligation when a borrower makes a default. However, a guarantor would not be approached as immediately as a payment is missed. Lenders usually try every possible method to cover money from borrowers. When all those methods are exhausted, they will turn to a guarantor.
However, when you are to take out a direct lender loan, you do not have to arrange a guarantor. A direct lender with no guarantor requirement loan is more flexible than a guarantor loan.
First off, arranging a guarantor is not a cinch. Most of the people will refuse to act like a guarantor as they cannot be certain about your repaying capacity, and they know the repercussions they would have to bear if you made a default on your loan. Direct lender loans require no guarantor, and hence, they can be easily approved.
The approval criteria for these loans are less strict than for guarantor loans. Despite having a bad credit rating, the lending decision would be made on your income sources. If you prove that your budget has enough wiggle room to repay your debt, your loan application will be signed off on.
Direct lender loans are not subject to collateral
Direct lender loans are not subject to collateral. It means you do not have to secure your loan against a valuable asset. When your credit rating is not stellar, you are required to secure your loan. Putting down the collateral reduces the risk of a lender. This is because when you fail to discharge the debt, they could repossess the security to cover their money back. Liquidation makes it much easier.
Unfortunately, there is a huge risk of losing collateral. Most of the time, the collateral lenders ask for is your house. In case of non-payment of your debt, you will end up losing your home. Fortunately, direct lender loans are not subject to collateral. It means you do not have to secure your loan against the property. Therefore, you do not have to bear the risk of losing your property in case of default.
The best thing about direct lender loans is that they do not require a guarantor and collateral, even if you are looking to borrow money with a very poor credit rating. Most lenders do not approbate extremely bad credit loans, but there are certain lenders that would let you borrow money despite extremely poor credit rating. The lending decision is made on your repaying capacity. If your income sources are good, you will be able to qualify for direct lender loans. But high interest rates will be charged.
Direct lender loans involve flexible payments
Like other small emergency loans, direct lender loans also carry a small amount of money. Small loans are usually discharged in fell one swoop. The due date cannot be farther than a month. Since a lump sum payment is made, it could be quite challenging to manage the debt.
Fortunately, direct lender loans are more flexible than other small personal loans. Though the loan amount is small, you would still be able to qualify for a loan with an instalment repayment plan.
If the borrowed sum of money is larger than £1,000, there is a possibility that you would end up settling your obligations in fixed instalments. A larger sum is easy to divide in fixed instalments over a period of time. If a lender cannot divide payments into fixed monthly instalments, they will require you to pay down the debt in fixed weekly instalments. The repayment plan could be either weekly or bi-weekly, depending on your repaying capacity. However, the repayment term could be more than a month.
This will preclude you from falling behind on payments. You can easily manage the debt when you have to clear it over time.
The bottom line
Direct lender loans could come in handy when you need money for an emergency purpose. These loans require neither a guarantor nor collateral. These loans normally come with a very small amount of money, and hence, they are paid off in full on the due date, but a few lenders may offer you a larger sum, too. This depends on your repaying capacity.
If your income sources are stellar, you would easily qualify for a larger sum. When the loan amount is slightly larger, lenders might offer you an instalment repayment plan. This will make it much easier for you to tackle the debt.
A golden rule of thumb says that you should carefully analyse your repaying capacity. If you borrow money more than your affordability, your account will be sent to collection agencies. This will cause problems for you down the line. If you do not pay off your obligations as soon as possible, you will be taken to court. A CCJ will be issued against you, and then you will find it even harder to borrow money at affordable interest rates.
