Private lenders or banks? | The bank rate

When evaluating personal lenders, you can choose from traditional banks and private online lenders. Bank lenders generally offer better rates and the added security of working with an established lender, but loans from online private lenders are often faster and easier to obtain.

Which option will work best for you depends on your particular situation. If you don’t have a great credit history or your credit is weak, you may find it easier to get a loan from a private lender. If you have a good credit rating or an established relationship with the bank you want to borrow from, you will likely qualify for better loan terms with a bank. To determine which option will be best for you, you need to consider your credit health, the interest rate you can afford, and any additional features you might find useful, such as online service. compared to in-person service.


  • Average APRs of online personal lenders range from 5.99% to 35.99%.
  • The average APR for a personal loan with a bank is 8.73%.
  • 56.2% of Americans with personal loans borrowed money from a bank in 2021.
  • 32.2% of Americans with personal loans borrowed from online lenders in 2021.
  • 78% of Americans prefer digital banking to in-person banking.
  • Borrowers can save an average of 35% by shopping around before choosing a loan.

Compare banks to online lenders

Getting a Loan: Bank vs. Lenders

Bank Online lender
Lower interest rates Higher interest rates
Slower application process Faster application process
Rigorous approval process Simplified approval process
More regulated Less regulated

Although bank and online loans are subject to government and industry regulations and involve varying rates and terms, there are many differences between the two.

Bank loans tend to be much more regulated, which means eligibility and borrowing requirements are less lenient. They also take longer and often require in-person visits to finalize the loan. Since the process of obtaining a bank loan is more rigorous, banks are usually able to offer lower interest rates and sometimes offer benefits to pre-existing customers.

Online lenders are much less regulated than banks, allowing for faster application processes and looser eligibility requirements. However, because online lenders vet applicants less rigorously, they also tend to have higher interest rates and fees than traditional lenders. The main benefit of an online loan is convenience, as you can complete the entire process online and funding is usually available within a week, whereas banks tend to take longer.

Decide what’s right for you

Before deciding which type of lender is right for you, there are many things to consider. It’s always best to shop around and compare rates from multiple lenders before settling on one. You will need to consider the rates, loan terms, requirements, closing costs and fees offered by different lenders. You should also make sure you know your credit score and are sure what you can afford before applying.

Are banks better for me?

Getting a personal loan from a bank may be the best decision for you if you have a pre-existing relationship with a bank, have good to excellent credit, and have time to go through the longer approval process. .

The advantages of taking out a personal loan from a bank are a lower interest rate, offers and potential benefits for existing customers, in-person customer service, and the consistency and security that traditional banks offer. While online lenders have the option of selling your loan to another servicer, banks tend to see loans through. However, there are also disadvantages.

Although many banks offer fast financing comparable to online lenders, bank loans generally take longer to process and you may need to visit a branch in person to apply. If you need money as soon as possible and don’t have time to wait, it may be best to consult online lenders.

Additionally, many bank lenders don’t allow you to prequalify before applying for a loan, making it harder to predict exactly what your monthly payments will be before you apply. Banks also have stricter eligibility requirements as they are more regulated, which means borrowers with bad credit or a poor credit history may have difficulty qualifying.

One of the biggest benefits of working with a bank is the benefit of having a pre-existing relationship with the bank. However, it may also mean that there will be pressure to sign up for additional financial services. If you decide to take out a loan from a bank, be sure to only ask for what you need.

Advantages The inconvenients
More chance of lower interest rates No pre-qualification
Could offer special rates to existing customers Pressure to register for other financial services
Continue to manage your loan Stricter eligibility criteria

Are online lenders better for me?

Getting a personal loan from an online lender may be best for you if you’re worried about qualifying, need money fast, or prefer the convenience of an entirely online experience.

An online loan could also be beneficial if you want to learn some lending and finance skills, as many online lenders have online resource centers with various calculators, informative videos and other financial literacy tools. . One of the biggest advantages of online lenders is that they usually allow you to prequalify. This process allows you to see what you may be entitled to if you have applied, based on soft credit that does not impact your credit. For new borrowers, prequalification could help you better understand your financial situation and your ability to borrow.

Online lenders also carry risks. Since they generally have less stringent eligibility requirements, online loans usually have higher interest rates than bank loans. This is particularly risky for borrowers with bad credit, who may be more likely to search online due to easier eligibility requirements. You should never take out a loan unless you are sure you can make the monthly payments, including interest.

Online loans also carry a greater risk of scams. Since online lenders are less regulated and the internet is relatively new compared to physical banks, it’s important to make sure you’re choosing from verified lenders. To avoid personal loan scams, compare top lenders and read customer reviews before choosing a lender.

Loans from online lenders tend to be popular among borrowers with bad credit because the requirements are less stringent and the terms of the loan can be negotiated. Consider looking into bad credit loans if you don’t have good credit. These lenders are open to working with borrowers with bad credit and have reasonable rate caps to help borrowers avoid exorbitant interest rates. However, the rates for these loans can still be relatively high and you should always make sure you can afford to pay before signing a loan agreement.

Advantages The inconvenients
Easier to compare lenders and rates side-by-side No in-person customer service
Financial Literacy and Lending Resources Higher interest rates
Ability to negotiate loan terms Risk of scams

Other opportunities from financial institutions

Although banks and online lenders are two of the most popular personal loan services, other options exist. You can also take out a personal loan from a credit union, a peer-to-peer lender, or a point-of-sale installment loan from a store if you need the loan for a certain item.

  • Credit unions: A box is a member-owned financial institution. You usually need to be a member of a credit union to access its services. They often offer lower interest rates and fees than banks, and the application process is a bit easier once you’re a member. To join a credit union, you generally need the same documents to open a bank account, including government-issued ID, proof of address, and more.
  • Peer-to-peer (P2P) lending: Peer-to-peer lending are loans issued by an individual or a company. Peer-to-peer lending platforms allow you to submit a single application and be matched with lenders who might work for you. This is a good option if you are having difficulty qualifying elsewhere or want the ease of submitting an application and having lenders come to you.
  • Point-of-sale installment loan: Point-of-sale installment loan are loans issued by a retailer that allow customers to purchase an item immediately and pay it back in instalments. This option may come with a discount or an interest-free period, which could be a solid option if you are planning to take out a loan to purchase the item. However, interest rates can be high and it is generally not advisable to take out this type of loan.


When shopping for loans, it’s important to know what your total cost will be at the end of the repayment period. Bankrate has resources to help you learn how to calculate interest on your loan so you’re ready to start making payments.

The bottom line

Several options are available to you if you are looking for a personal loan. Deciding which type of lender you want to work with is the first step to finding the right lender for you. Online lenders and peer-to-peer lenders offer an alternative if you need money fast or are worried you won’t qualify with a bank. If you prefer in-person service and are currently working with a bank you trust, it might be a good idea to borrow from them. However, before considering a personal loan, it is worth trying to save money or find an additional source of income. Although personal loans are often necessary, it is best to avoid debt if you can.

Comments are closed.