The borrowing scenario no longer remains the typical one. You can expect a lot more flexibility after the advent of online lenders and Fintech companies. In recent years, there has been an upsurge in lending options, which is both great and alarming.
Ever imagined the extent of confusion it has created in the borrower’s mind? It is crucial for them to know who the regulated and unregulated lenders are. Again, the latter does not mean a red flag always, but assessing a few things will be mandatory.
You have to look beyond the technicalities of the lending process. Even while scrolling through the offers from an unregulated lender, you must analyse a few things carefully. You might get to see eye-catching offers here and there on the internet.
Some of them might claim to provide loans for your bad credit history with an instant approval guarantee. It is easy for you to fall for such traps, especially when you have been looking for funds desperately.
There is no need for you to discard the offer right away. It might have some hidden truth that should be unveiled. For this reason, review the offer and the lending background to find out if it will benefit you.
It might happen that it turns out to be the most suitable offer despite coming from an unregulated loan provider. Thus, first, you must understand regulated and unregulated lenders completely.
Regulated or unregulated lenders: Who is the best?
The best one among these lending sources should be decided according to your requirements, financial capacity, and ability to repay. Not always, a regulated lender who could be a bank or a prominent financial institution will be able to fulfil your necessities.
To make an informed decision, you must delve deeper to understand these two ways of lending.
Who is a regulated lender?
When it comes to them, you will always think of a bank. They are prominent organisations that issue loans and are regulated by the FCA (Financial Conduct Authority) in the UK. They review the lending sources to validate if they are exercising unfair practices while handling loan requests.
Their main tasks involve a few steps to safeguard the borrower’s financial well-being.
- Check if the lender is treating the borrowers fairly and equally
- Verify if the loan provider is producing the required information about loans to borrowers
- Pay attention to the checks the lender conducts to ensure that affordability checks are prioritised or not
- Making sure that the rates of interest imposed on the borrowers are capped as per the lending rules
- When you deal with regulated lenders, you can be fear-free in a true sense. You get the protection of FCA, and you can rest assured that you do not have to encounter any unethical practices.
Who is an unregulated lender?
These loan providers operate outside the influence of the FCA. Their operations are not governed by this body. This often encourages them to operate unethically and scam borrowers.
However, the good news is that not all of them are like this. They are not required to follow the lending conditions set by the concerned authorities. They are mostly:
- Peer-to-peer lenders
- Private loan companies
- Some payday lenders
- Pawn brokers
- Loan sharks, i.e., Illegal loan providers
- Informal lenders
The aspects to keep in mind to understand the lending terms of unregulated loan providers.
- You will get limited protection at the time of borrowing money
- If you’re not careful, you might end up getting loan help that accumulates debt faster
- You might have to encounter strict debt collection practices
- These lenders can fix their own terms and conditions of lending, which may or may not be flexible
- You have the upper hand with them, as comparing rates and terms will be possible
- Thorough research about the lender and their lending practices is compulsory
- The chances of getting tricked by a fraudster or a loan shark are slightly higher
- Understanding the lending risks before borrowing is very important
How do regulated and unregulated lenders differ?
You are aware of the major difference. Apart from this, there are certain things that must get your attention when it comes to choosing anyone.
Borrowing protection
If you need a safe approach, a regulated lender will be perfect for you. Unregulated lenders cannot provide full protection, and dispute resolution might be difficult.
Loan transparency
Regulated lenders will give you complete clarity about fees and rates. Unregulated lenders are not bound to do so, but direct lenders maintain the same level of transparency while handling the requests of borrowers.
Affordability checks
These are mandatory for any form of lending. Thus, if you are looking forward to getting short-term financial help from direct lenders, you will have to go through these checks. In some cases, this aspect will outweigh your credit scores.
Interest rates
Regulated lenders are required to follow the conditions set by the ultimate authority at the time of fixing the rates of interest. They should be fair and justified. With unregulated lenders, you do not have to accept unfair terms, as pre-approval followed by rate comparison is possible.
What are the key considerations while choosing the lender?
No straightforward decision can be provided as the choice might differ according to the situation of the lender. Thus, you must go through a set of steps to make sure of choosing the right lender.
Validate your necessities
The hunt for the right lender should begin with assessing the purpose. This will help you understand the type of loan you must get. This can ultimately lead you to the right lending source.
Urgency of requirement
At times, you might need loans urgently. The traditional lending process cannot promise speedy processing of your loan request. However, unregulated lenders can help you get quick access to funds because of their speedy processing.
The bottom line
You must understand the level of risk you will have to take while working with a particular lender. This can be evaluated by researching the lender and the financing options.
Not to forget that both lenders can be found in the lending market. One must understand the implications of borrowing with a bot before deciding.
