In the last decade, technology has changed greatly, impacting how financial institutions operate. The new wave of alternative lending is becoming increasingly popular as the preferred option of many consumers over more traditional forms of financing.
In this article, we will be looking at the differences between borrowing from banks versus alternative lenders when it comes to personal loans.
Many banks will turn you down for a loan purely based on your credit rating, or, they will offer you less favourable loan terms and a higher interest rate as they see you as a bigger risk. However, most alternative lenders will take other factors into consideration to see the bigger picture. This involves a more personalised application experience, where they will take the time to understand your situation due to their different lending criteria.
Traditional banks have strict criteria and eligibility requirements that you must meet before they consider you for a loan, while alternative lenders can be more flexible. If you have financial blemishes that are easily explained, they will listen, while banks may be less lenient. Alternative lenders are often more willing to understand your full story and try to see you as a person rather than a number. They are able to look at your current situation and changing financial circumstances to create a responsible loan that works for you.
It has become increasingly popular to complete errands online, from grocery shopping and paying bills to managing personal finance and applying for loans. With new developments in technology revolutionising the digital experience and convenience of online or app-based banking, people are more reluctant to visit a bank in person.
Having a streamlined online system for loan applications is important this digital age, as people are becoming increasingly time poor and the ability to apply for a loan at a time and place that suits them is essential. Alternative lenders are often at the forefront of innovative digital solutions that enable easier applications and faster funding turnaround times compared to big banks, therefore making it more efficient and flexible when it comes to gaining approval and receiving funds.
Interest rates and fees
The level of risk associated with an applicant (i.e the likelihood of maintaining their loan repayments) can affect your interest rate. Alternative lenders charge a higher interest rate compared to traditional banks, as they have different application standards which will consider applicants with less than ideal credit histories.
The interest rates for a bank differ depending on the customers’ credit score and will be outright denied if the score isn’t deemed good enough. As banks won’t consider these applicants, they are able to offer lower interest rates due to less risk being associated with the applicant. Alternative lenders can help provide options for customers with poor credit scores who would be declined a loan elsewhere, but they may be charged at a higher interest rate. Both lenders may charge fees for loans but these vary highly depending on the lender.
The flexibility of alternative lending is valuable as they have the ability to tailor the loan to suit your needs, with more lending options compared to traditional banks. Everyone’s financial situation is different, and every applicant will have varying eligibility, as loans are not a ‘one size fits all’ product. Choosing whether to go with a traditional lender or an alternative lender requires you to reflect on your own financial history to determine who is most likely to provide the best option for your situation. If a traditional bank loan doesn’t work for you, research other lenders to see if they better suit your circumstances.
At LoanU, we believe in looking beyond your credit score. We look at your future, rather than unfortunate events in your past, and our eligibility criteria won’t judge you for black marks on your credit report.
Our goal is to help you regain control of your finances with access to responsible credit that can help you move forward with your life.