Who Wins? Traditional Banks or Alternative Lenders?

There has been a growing discussion on which is the best option to take. Although both institutions have their own advantages and disadvantages, you just can’t help others from choosing one over the other. How about you? Which one do you plan to use for your loan applications? Is it the traditional bank that some have gotten used to or the alternative lender available over the internet? Before you decide, you should read the comparison to ensure that you are going to choose the right one.

Requirement

Honestly, the banks today have taken the more conservative path in terms of lending money. You cannot blame banks for such decision due to the emergence of economic financial crises that shook up several countries and, in some instances, the whole world. Hence, it would be easy to understand why they choose to limit their borrowers to those conservative investments. However, this is what challenges most small and start-up businesses as the banks’ decision made it difficult for them to have their loans approved. Therefore, the alternative lenders came into the picture. Compared to the banks, they are the ones who are brave enough to enter higher risk investment by allowing small and start-up businesses to borrow funds from them. Through this, even the small and start-up businesses could have access to fast cash online.

Terms

In every investment, there is a benefit and a setback. Although the alternative lenders easily grant you with a loan, there are instances when they charge higher rates compared to banks. Again, you cannot really blame as they are putting their money in a riskier investment so they have to compensate such risk by charging a higher interest rate. The banks’ decision to stick to conservative investments, on the other hand, allows them to offer a lower interest rate to its borrowers.

Maximum Credit Line

As mentioned earlier, the nature of the banks’ investments allows them to offer lower interest rates. Along with this advantage, the banks also have the capacity to offer a greater maximum credit line compared to the alternative lenders. In fact, this all boils down to the risk that the lending entity is facing. Since the alternative lenders are facing a higher risk compared to the banks, it remains hesitant to offer more money to its borrower for fear that it might not be paid. Then again, you have to note that although banks offer greater maximum credit line, it would be harder to qualify for it compared to the alternative lenders.

Collateral

To safeguard the lending institution that lent money, they require some sort of collateral. Basically, most banks offer both secured and unsecured lines of credit. The collateral for the secured one can be in the form of real estate or inventory. The alternative lenders, on the other hand, tend to offer unsecured credit lines, but there are still some who offer secured lines of credit.

In today’s fast-changing world, more and more people get easy access to several financing options. Although the battle between the traditional banks and alternative lenders continue, it is still up to you to decide as to which is more comfortable for you. Then again, remember to compare these two in terms of the criteria enumerated above so you know where you are getting at.

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