The Advantages of Loan Providers Over Banks

The demand for loans and consumer is expected to climb by 7.9% this year (and 5.5% in 2023), with this driven largely by the ongoing cost-of-living crisis.

Inflation is set to hit 9.1% during Q3 this year, creating a scenario where many cannot afford to live and may have to seek out loans and credit as a way of funding bills and their lifestyle in the near-term.

If you are going to seek out loans, however, should you visit a bank or independent loan provider? Here are some of the key considerations:

What is a Loan Provider?

While a bank is classed as a financial institution and traditional lender, alternative loan providers can comprise individuals or groups (both private or public) who offer fund to people and businesses that meet their criteria.

Of course, money is lent on the expectation that it will be repaid in full, while an agreed rate of interest is usually applied to guarantee the lender a profit and offset their risk in lieu of security or collateral (in the case of unsecured loans).

We’ve seen a huge rise in the number of loan providers accessible during the last decade, after the financial crash of 2008 triggered an economic evolution and a transition away from rigid, institutional investors.

What Types of Products are Available Through Loan Providers?

One of the advantages offered by alternative loan providers in comparison with banks is the range of products that they offer, which is why such entities became so popular in the wake of the great recession.

For example, alternative lenders often promote unsecured loans and credit at variable and competitive rates of interest. They may also provide bad credit loans for those with less-than-optimal finances or poor credit score, making funds more accessible and driving financial inclusion across the board.

With a more diverse product range and less barriers to entry, reaching out to alternative lenders can provide much better and more immediate solutions than banks.

What Other Advantages to Loan Providers Have Over Banks?

As we can see, loan providers tend to be considerably more flexible and accessible than banks and other institutional lenders.

When it comes to business loans, the criteria required by banks is particularly challenging and difficult for many small businesses to overcome.

For example, traditional banking business loans demands profitability, which isn’t always the case among venture capitalists, angel investors to peer-to-peer lenders.

Banks loans can also be complicated and time consuming, whereas alternative lenders will often approve and process applications quickly in order to secure a profit and add customers to their database.

Often, alternative lenders provide unsecured credit at a predetermined rate of interest. Alternatively, banks and traditional lenders will often require collateral from borrowers, and this may be a risk that individuals and businesses don’t want to take in the current climate.