I suppose it’s really as a result of their omnipresence with regards to why people think about going to their bank first whenever they want to borrow money, but banks aren’t the only channels through which one can get credit when required. Sure, your bank makes it seem like it’ll be the easiest channel through which to get credit, but try and actually go through the process of taking out a loan and you’ll realise that’s it’s largely a road which is filled with many hoops to have to jump through.
So I think it pertinent to discuss the various borrowing options which are available, particularly with the aim of demonstrating that the bank isn’t the be-all and end-all of the financing industry.
Okay, so there are different types of lenders, namely direct lenders and indirect lenders and I’m going to first discuss the direct lending institutions, including the traditional bank.
We’ve already established banks as an example of direct lenders, but sometimes the process of getting a loan from a bank is way too cumbersome and drawn-out, which is why one can perhaps look to applying for short term loans online if the need for you to get credit is more of an urgent one. So direct lenders are those which are themselves giving you credit, like banks, payday loan providers and even some insurance companies. They don’t involve any third parties in the transaction, which is often a great channel through which to get credit because you get very competitive repayment terms and interest rates in this way.
Ultimately it comes down to exactly why you require your credit, in which case you can take your pick from the types of direct lenders out there, but sometimes the job is even done for you in the form of indirect lenders. Naturally though the interest rates and service costs associated with indirect lenders will be much higher because they have to account for the transaction costs associated with their introduction of a third party into the equation.
Indirect lenders are those lending institutions and establishments which only really come to the fore once you demonstrate your intent to make a substantial purchase for which you naturally don’t have all the required cash on hand. Car dealerships are fast becoming the most common iteration of indirect lenders, coming in to provide car finance for their clients on somewhat of a split source financing model. This means that they don’t necessarily go to a bank and effectively sell the debt the car buyer takes out to them, leaving the car buyer with repayments to be made to the bank. What they do these days is put up some or even all of the money themselves as the financers, which naturally introduces a whole new set of dynamics with regards to repayments and considerations of the process around repossessions, credit extensions, etc.
Another example of indirect lenders is that of the clothing accounts people open in order to buy clothes and accessories on credit, in which case the debt is also sold on to whichever financial institution has the tools in place to enforce collections on that credit consumers take out.