What Are Direct Loans?

Direct loans are loans that are, quite simply, contracted between a lender and debtor without the intervention of a third party. If you get a line of credit from your bank, that is a direct loan, in most cases. If your dealership arranges a car loan for you through a local bank, that is not a direct loan. A direct loan has several advantages. Since there is no third party, you may be able to enjoy rates that are not hiked. In non-direct loans, such as in the dealership scenario depicted above, the third party can and usually will increase interest rates as a “finder’s fee” or “service fee.” In direct loans, the lender has more control over who to grant money to. This allows lenders to feel more confident about their debtors. If you are interested in direct loans, you need to consider interest rates. Even though direct loans may offer you low interest rates, different direct loans will offer different rates, so you may contact several lenders to see their best rates. You also need to consider the terms of any direct loans you are considering. That means checking how long you have to pay off the loan and also checking to see what security you have - if any - in case there is a month or two where you cannot make payments on your direct loans. You also need to be aware that direct loans, like other types of loans, work by using your credit history and credit score to assess your credit risk. When you apply for direct loans, lenders will run a credit check on you and will use the information they find to decide what rates, terms, and loan amounts to offer you. Since they

have no third party to secure them in case you default, they may be even pickier about your credit rating. Before applying for direct loans, therefore, it may make sense to make sure your credit history is good. Maintain good financial habits by paying your bills on time and order a copy of your credit report to check for any mistakes that may affect your credit rating. Having your credit rating will also allow you to negotiate with your lender, since with no third party you will likely be negotiating with a lender yourself. If you have a poor credit history or can’t seem to get a direct loan easily on the terms you want, consider secured direct loans, that use collateral as a security.