Private Lenders Vs. Banks: Where To Get A Loan

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When you’re looking for personal loans, you have two main options available to you: private lenders and banks. Sometimes, it can be difficult to determine which option is the right one for your needs, especially if you’re new to the world of personal loans. If this sounds like you, you’ve come to the right place! In this comparison, we’ll look at the pros and cons of private lenders vs banks to help you make the right choice.


This is the more traditional borrowing route. You head to your local bank, tell them how much you want to borrow, and if they think you’re financially healthy enough to pay the money back, they’ll offer you a loan. For most people, heading to the bank is the first option. However, this doesn’t necessarily mean it’s the best one.

There isn’t much of a difference between banks and private lenders in terms of how much they can lend you. However, do bear in mind that most banks are not going to allow you to borrow just a few hundred dollars, but many private lenders will. 

You will also find very few differences in loan terms between banks and private lenders, unless you’re borrowing small amounts of cash. In that case, private lenders may allow you to pay back in a few weeks, and sometimes a few months. Terms like this aren’t possible with banks, which typically give out loans that are to be paid over a multi-year period.

There are a lot of regulations that banks need to stick to in order to loan out money, some of which are regulations that private lenders do not have to abide by. As a result, banks tend to be a little bit pickier when it comes to who they lend money to. Generally speaking, you are only going to be able to borrow money from a bank if you have a solid credit score and a decent credit history. If your credit score is below 660, then banks are probably a no-go for you.

The trade-off is that because banks are vetting potential borrowers more thoroughly, there is less risk on their part. This means that they are able to offer far lower interest rates. As a result, borrowing from them is going to be a lot cheaper.

Borrowing from a bank is going to be a lot slower than private lenders, as well. Getting approved for a loan from a bank in under a week is improbable. All that being said, banks are the perfect option for people with decent credit scores and who are not in dire need of money ‘right now’.

Private Lenders

Private or alternative lenders are usually the go-to option for people who, for some reason, can’t take out loans from banks.

Perhaps the major benefit of private lenders is that they are more likely to approve those with lower credit scores. Though if your credit score is completely woeful, you’ll still find it difficult to get approved. As sites like Rate Genie point out, the interest rates on personal loans from private lenders are higher than rates from a traditional bank. This is because lenders are assuming a lot more risk when they loan money to people with less-than-stellar credit scores. Moreover, private lenders make the bulk of their income from personal loans but banks do not. The good news though is that private lenders can never charge above 60% APR as per Canadian law.

Many private lenders will allow you to pay back your loan far quicker than banks. While the typical multi-year personal loan is available, several private lenders also offer loans that you can pay back in mere weeks. Some will even allow you to pay back a multi-year loan early without penalty. 

That being said, you need to be more diligent when finding a private lender compared to when you’re working with a bank. There are some private lenders that provide a rather poor borrowing experience,  partly because they do not have to work under some of the stricter government-mandated regulations that all banks are required to comply with. 

Another big advantage of private lenders is that they can loan you cash a lot quicker. In many cases, you can have the money in your bank account within a day or two.

To sum it up, private lenders are ideal for those with less-than-perfect credit scores, or those that may need to quickly get their hands on their money. Private loans are going to be a lot more expensive as a result, so only opt for one of these loans if banks reject your loan application.


If you have a decent credit score, then bank loans are always going to be your best option for lending, even if they can be a little bit slow to pay out. However, if you have had financial issues in the past, or you are not in the best paying job ever, you may find that private lenders are more suited to you.

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