In times of financial difficulties and when the need to borrow money comes, many ideas flash through one’s mind. One of the most significant decisions that you have to make is whether to borrow from a private lender or a bank. These are two different institutions. Each of their model of lending differs in many ways. So, you might want to consider some of the differences that place them apart. It should guide you in your decision-making process. Here are the differences between bank loans and private lender loans to help you better understand how each institution operates.
Interest Rates
The first point you might want to consider when comparing bank loans and private lender loans is the interest they charge. The banks are involved in fierce competition with the other banks, and their quest to capture a vast pool of customers forces them to adjust their interest rates downwards.
It means that compared to private lending institutions, the banks might charge lower interest rates. Banks focus on consumers who need long-term credit, and these are mostly people in the middle of high-income brackets, which is unlike private lenders who often concentrate on emergency borrowers. The interest charged by the private lenders tend to be higher because they work with high-risk clients.
Application Process and Processing Time
Banks issue a strict application process for loans, and this is often time-consuming. If you are borrowing for an emergency situation, this might not be the best place to get a loan as you have to fulfill all the requirements issued before your application gets approved. Don’t forget that you also have to wait for a specified period for the request to be processed, which is done manually.
Banks will ask you for many documents, and these could include the name of your employer, source of income, social security number, credit history, and social insurance number. It is not necessarily the case with private lender loans as a private lender issues a much more straightforward process that could include necessary information and your monthly earnings.
In addition to the requirements you have to fulfill, banks take a longer processing time, especially when your credit history is not very pleasant. You may have to wait for weeks before your loan application is approved. On the other hand, a private lender loan could be supported in a matter of hours or one day because it requires less personal information.
Loan Term
Bank loans come with many features, and one that might keep you in debt longer is the fact you are allowed to extend the loan term. For someone with an undisciplined approach to borrowing, this is not a good thing and might result in prolonged repayment periods, which means paying more in the long run. Private lender loans are focused more on servicing emergencies and will allow you to pay back within a shorter duration, so you can much easily clear your loan as you are not given an assurance there will be any extension to allow you more repayment time.
Credit History
Even if you have a bad credit history, you could still get a loan if you borrow directly from a private lender. It is because private lenders don’t have many obstacles and when applying you are typically awarded a smaller amount and the repayment period is also shorter. In fact, this could help you restore your credit rating. On the other hand, you cannot be sure to get a loan from a bank with a bad credit rating. Your credit rating is one of the significant factors, which the banks focused on when evaluating your application to decide whether to award you the loan.
There are significant differences between private lender loans and bank loans that could help you decide where to borrow. One of them is the speed at which your application is processed. So, for someone who’s in an emergency to get a loan, it would be advisable to consider a private lender because of the fast processing speed and fewer requirements for documentation.
Private lender loans have, without a doubt, more accessibility compared to bank loans. Which is why more and more people depend on it for important funding needs. If you’re planning to get a loan anytime soon, check out www.moneylend.net, an online company that helps consolidate and compare different offers for you so you no longer need to exert effort in looking for loans yourself.