The development of online lending platforms has given individuals considerably more options when it comes to borrowing money. These, along with various other types of private lenders such as credit unions, credit card companies, and private creditors, are often a viable alternative to banks. However, getting loans from private lenders is not always better than borrowing money from banks. In most cases, it all boils down to 3 important details:
- Whether or not the borrower has a high credit rating;
- How fast the borrower needs access to the money;
- How often an individual intends to borrow money;
This having been said, there is no easy way to establish if it is always better to borrow money from banks or other types of private lenders. Here is what you need to consider:
Take Your Credit Rating into Consideration
All banks will perform credit score checks to decide if an individual should get a loan or not. Depending on the borrower’s financial history, the lender may refuse the loan application or take precautions to ensure that all the money will be repaid.
Generally speaking, credit score checks are performed whenever an individual applies for a personal loan, line of credit, mortgage, and even business loan. This can cause borrowers who are going through financial difficulties to be unable to get any sort of loan. On the other hand, there are several types of private lenders that either do not perform credit score checks or simply have lower requirements when it comes to its value. This means that private lenders may be better for individuals who have low credit scores, or for young adults who do not yet have a financial history that is large enough to allow them to borrow a considerable amount of money.
Speed May Sometimes Be Important
All banks have a similar operating structure. They allow potential borrowers to submit their application, as well as all the papers that are required for the loan. While the application submission can only take a couple of minutes, gathering all the documents that are requested by the lender can take up to a week. Once the borrower has submitted the application and the documents, the lender will analyse them. This step can take an additional week, however, in some cases; it can last for an entire month. The point is that banks tend to work slowly, which may not be suitable for the needs of some individuals.
However, private lenders (especially online ones), skip this verification and only require documents that are easy to get and submit, such as proof of address, proof of income, and proof of identity. This enables individuals to get loans in less than 48 hours and there are even private lenders that offer same-day deals.
Borrowing Money too Often May Damage Your Credit Rating
All banks report loans to various credit agencies, which mean that every time an individual borrows money; his credit rating will be affected. While this is not a problem for people who only take out one loan every couple of years, whose who need to borrow money regularly will see their credit scores drop. However, most private lenders do not report the loans, which mean that they will not be recorded in an individual’s credit file. This is ideal for those who are having a difficult time managing their monthly expenses without financial help.
Overall, traditional lenders such as banks are stable and are useful for those who do not depend on their services to get by. Taking out a loan from a bank can take up to a month, there are a lot of documents involved in the process and borrowing money too often can reduce an individual’s credit rating. On the other hand, private lenders have higher interest rates but go through loan applications much quicker and require less information to evaluate potential borrowers.