Direct Lender or Connector for Bad Credit Loan?

Writer and editor - Lauren Ward | Updated on 2023-02-23

It can be challenging to decide between a direct lender and a connector for your personal loan because each provider has distinct pros and cons. Read on to learn what you need to know about each type of lender to make an informed decision about your loan.

Pros of a Direct Lender

Direct lenders have the benefit of centralizing their operations. Everything is under one roof. The same company that accepts your application will be the one that distributes the funds. This streamlined approach makes for a quicker approval process, so you get your money faster.

Dealing with a direct lender also improves the safety of your personal information. Only one company needs your financial information, as opposed to numerous third parties. A representative from a direct lender will not forward your data or use it to solicit personal loan offers.

Cons of a Direct Lender

Generally speaking, direct lenders are significantly smaller than connectors. As a result, you will only get one loan product for your application. This limitation means that borrowers have fewer options when it comes to finding loans and terms that best suit their financial requirements.

Furthermore, direct lenders usually only cover specific states. The lack of range can make it challenging to compare quotes from one lender to another. As a result, you will have to do the legwork yourself when it comes to shopping for competitive rates on loans.

Third, and perhaps most important, direct lenders have lower approval rates. The higher barrier to acceptance can be especially problematic for people with poor or no credit history. If your credit score is a significant concern, you should consider opting for a connector for your personal loan.

Pros of a Connector

A connector goes by many names, including a loan protector, matcher, or broker. Regardless of what you call them, though, their function is the same. They leverage industry experience and connections to find a personal loan with a high chance of approval for you.

Using a broker cuts out the leg work of shopping around. You will fill out one application, and receive one quote that is pre-approved. It may not be the best loan, but it will be an approved lender.

What’s more, most brokers do not charge brokerage fees. Instead, they receive compensation from the lender for matching you to them. In most cases, brokers will list all costs associated with your transaction before closing the deal. Be sure to review these details before you sign on the dotted line to ensure there are no surprise charges.

Having a broker do the work for you will also save you time. Instead of meandering through the jargon and unfamiliar terms, you have an expert tackling the problem for you. Any connector worth their while will then clearly articulate your options in a way that is easy to understand.

Cons of a Connector

While a connector often knows which lenders are most likely to accept your application, as they are dealing with multiple organizations, the application process will take longer.

Additionally, as a connector is finding you is an approved lender and may not be the best lender, the offer you are given is not always perfect. It is possible if you were to apply to each lender yourself, you would get approved for a loan with better terms—but you would have to put in the work and take the credit hit to do so.

Hiring a loan broker, as you can imagine, is also not free. You pay for their expertise in handling your personal loan application. That investment can still be worth your time and money, though, especially if you find the loan process confusing or intimidating.

Lauren Ward

Lauren Ward
Writer and editor

Specializing in original, well-researched web content, including blog posts, news articles and web copy. Areas of expertise include personal finance and lending. 10 years of experience as freelance writer and working at Federal Reserve Bank of Richmond.
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