Whether it is a bank or an online lender, they are all called lenders or loan providers because they lend money to people. The difference between a mortgage lender and a direct lender is quite obvious. The former cannot be the latter. Mortgage lenders or providers could be banks or traditional financial institutions that provide mortgages but cannot be direct lenders. Mortgage lenders aim to provide mortgages to all types of borrowers, regardless of their credit history.
However, direct lenders cannot approbate your mortgage application as they provide small emergency loans. The main difference between a mortgage lender and an online lender is that the former provides only mortgages while the latter provides small emergency loans and personal loans, except for mortgages. There are still a lot of things you need to know about both these lenders.
While both types of lenders accept applications online, there are still a lot of things that are dissimilar.
Approval criteria
When you apply for a loan online, you are told that you can fill in the application form online. You do not have to be worried about your credit score. The approval criteria for mortgages and emergency loans differ. Not to mention, the approval criteria for mortgages are stricter than the approval criteria for small personal loans.
When you apply for an emergency loan from a direct lender, you just need to fill in the application form. It depends on a lender’s policy and what kind of application form they have. It may or may not be comprehensive. If it is comprehensive, you will be required to provide your income details, the number of family dependents, and any amount you owe.
Some lenders do not require you to fill up comprehensive application for emergency loans. Normally, these loans are aimed at subprime borrowers. It means whether you credit rating is poor, you are absolutely free to apply for these loans.
In fact, you will get the nod for emergency loans despite a very bad credit rating. These loans are also called very bad credit loans from direct lenders in the UK.
Such small emergency loans are not provided by mortgage lenders. Mortgages last for 10, 15, or 20 years, so the approval criteria for mortgages cannot be so easy. You will have to undergo an affordability check, which includes hard credit checks on your credit report and a perusal of your income sources.
If you are a subprime borrower, your chances of qualifying for a mortgage are very low. If any mortgage lender approbates your application, they will charge very high interest rates. While small emergency loans are approved the same day, mortgage applications take a couple of days.
Repayment term
Mortgage lenders set longer repayment terms while online lenders require you to pay in fell one swoop. The repayment term for a mortgage could be up to 10, 15, or 25 years, depending on your repaying capacity, but the repayment length for small personal loans is not more than a month. Most of the time, you would be required to pay down the debt within 14 days. You will have to pay off the full amount of debt once and for all.
You might think that emergency loans from direct lenders are inexpensive, but the fact is that they are expensive, too. Lenders charge very high interest rates and the amount that includes the interest on top of the principal within the same month you borrow money. It could be challenging to repay the debt. Most of the borrowers fall behind on payments. As a result, they end up rolling it over. It is vital to carefully examine your repaying capacity at the time of using small emergency loans. You can fall into an abyss of debt.
Mortgages involve risks, too. While monthly instalments can be easily managed due to an extended repayment term, there is always a risk of losing your house if your financial situation is turned upside down.
Consolidation facility
When you have multiple outstanding debts, you try to consolidate them into one large personal loan. Small emergency loans can be consolidated. For instance, if you have payday loans, bad credit loans, and overdrafts, they could be consolidated, but mortgages cannot be consolidated.
All small loans can be merged into one large personal loan, which is called a consolidation loan. Consolidation is a way to settle your outstanding dues, but you will have to meet certain conditions. For instance, you must have a good credit rating.
Some direct lenders might provide you with a consolidation loan despite a bad credit rating, but interest rates will be high. It is recommended that you carefully check your repaying capacity. The interest you pay on consolidation loans should be lower than the interest you will pay as an individual settlement for each loan. At the time of using consolidation loans, you should look for low-interest debt consolidation loans for bad credit.
Consolidation is not possible with mortgages. If you struggle to keep up with payments, you will have to bear adverse consequences. In case of falling behind on payments, you will end up losing your house. Apart from that, your credit score will be affected, too. Once your credit score is extremely poor, your chances of qualifying for a loan will be very low down the line. Not only will you be disqualified for a mortgage, but you will also face difficulty qualifying for small emergency loans.
The final word
Mortgage lenders are different from online lenders. Mortgage lenders provide only mortgages, while online lenders provide small emergency loans and personal loans, not mortgages. From repaying terms to approval criteria, everything differs.
Of course, if you want to borrow money to meet unexpected expenses, you will have to contact the direct lender. However, if you want to borrow money to purchase a house, you will have to apply for it from a mortgage lender. Remember that all loans are expensive, so you should carefully assess your repaying capacity, especially when your credit score is not up to snuff.
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