Private Lenders Vs. Banks

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When you need to borrow money, banks are not the only place to get access to it. A number of private lenders may be available to help fund your loan as well. While banks and private lenders offer some of the same services, they also have a few key differences between them.

Interest Rates

  • One of the differences between private lenders and banks is the interest rates that you can get from them. In most cases, banks have lower interest rates to offer than individual lenders. This is because banks have access to extremely large amounts of funds and can afford to offer a discount on the available interest rate. When you work with a private lender, you may have to pay a premium to get access to the money.

Application Process

  • Another difference between private lenders and banks is the application process. When you apply for a loan with a bank, you will have to fill out a large amount of paperwork and provide different types of documentation to the bank. When you apply for a loan with a private lender, you may not need to go through all of these steps. The application process for private loans is much more relaxed when compared with banks because private lenders do not have to abide by all of the same regulations.

Loan Approval

  • The approval process for both types of lenders is also a key difference between the two. With a traditional bank, you have to meet specific guidelines which determine whether you are worthy of a loan. When you apply for a loan at a private lender, you have to meet the guidelines that are used by that specific lender. The guidelines for private lenders are often more relaxed than those of traditional banks. This means that it will be easier for you to get approved, regardless of your credit situation.

Loan Limits

  • When you borrow money from a traditional lender, you will typically only be able to borrow up to a certain limit. The limit may be based on banking regulations or it could be based on how much money you earn and your credit history. With private lenders you can often borrow more money, as the loan limits are more relaxed. For example, many students who borrow money for college often have to borrow money from private lenders because traditional student loans did not provide them with enough.

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