Loans can be a good option if you need a financial boost in an emergency, or to help you deal with an unexpected expense. With a huge range of options to suit your borrowing needs, doing a bit of research and finding a lender that is suitable for your circumstances is advantageous. Borrowing from any lender means that you must be able to meet the payment terms to pay the loan back. Read on as we look at the repercussions you could face if you don’t pay your direct lender.

What is a direct lender?

A direct lender refers to an institution that offers loans of all types directly to a borrower, they are generally used as an alternative to borrowing money from a bank. They operate independently and offer loans to all types of individuals, with varying credit scores. You could choose to apply for a loan with a direct lender if you are looking for a specific type of finance, like short-term loans, or a payday loan, or if you have bad credit and find it difficult to be approved by other lenders. We’ll look at some of the loans that direct lenders have to offer below.

Types of direct lender loans

When choosing to apply for a direct lender loan, you may find some of the following on offer to you:

• Short-term loans: These loans offer funds when you need them most, in varying amounts, with the ability to increase the term over 9 months so that you can take advantage of more affordable payments.

• Bad Credit Loans: These loans are a way of acquiring funds in an emergency, even if you have bad credit – you can be offered various amounts to suit you, and your payments will be more affordable. You have a high chance of approval with these loans.

• Payday Loans: These loans are a good option if you need funds for an unprecedented expense. Direct lenders consider your application on an individual basis, meaning that your chance of being approved is greater and funds will appear in your bank account within 24 hours in most cases.

What happens if you don’t pay?

Of course, if you are thinking about applying for a loan with a direct lender, you’ll have to make sure that you can make the monthly payments. If you are approved for a loan, it is your responsibility to pay it back over the course of the term you have agreed, if you cannot do this, there are a few things that you can expect to happen which we will look at in more detail below.

Impacts credit score

One of the main reasons that you should ensure you can manage your loan payments are so that your credit score does not suffer. Your credit score tells lenders at a glance how creditworthy you are. It is scored up to 999, and the higher the score the better. Generally, scores over 670 are considered good scores and show that you can make repayments on time. Failing to pay back your direct lender means that your score will deplete, making it harder for you to be approved for loans in the future – this could impact your ability to get a mortgage or cash when you need it most. Failing to make repayments will stay on your credit report so that lenders you use in the future can use this to make their decision.

Fees and interest

Just like when you are late paying a bill, you will incur interest and fees charged to you when you miss a payment to a direct lender. If you miss a monthly payment, you are likely to receive added interest of a percentage of what you owe. Over time, this interest can mount up the longer you cannot repay the loan, which increases the amount you’re paying. If you what to ensure that you are only paying as much as you need to, make sure that you do all you can to reduce the chance of adding interest.

Defaulting

When you default on a loan, you stop paying what is required to pay back your direct lender. This can have a huge impact on the health of your finances and can result in financial difficulty. Defaulting on a loan means that the lender you have chosen to take out your loan with has the right to report this to the credit bureau – and this will lead to your account becoming a ‘collection account’.

Defaulting on a loan can have a serious impact on your credit report and shows lenders that you are at high risk when it comes to borrowing, reducing your chances of being approved for finance in the future. There are a few ways of ensuring you don’t default on a loan, such as talking with your lender to establish that you are having difficulty before it gets to this point and asking them for options before it’s too late.