5 Reasons Why Personal Loans are Better than Banks: Compare the Key Differences
The lending market has changed during the last year. Digital trends, started several years ago, now increased as a leading sphere during the COVID pandemic. How it affected the lives of ordinary Americans?
The popularity of personal credits is now even more visible. Loans like OppLoans became the main choice among Americans, and there are significant reasons for you to reflect on this variant. If you need some financial support, think twice before choosing the lender in 2021.
Here is what you should know about this solution and its main advantages.
What Differs Personal Loan from other Types: Definition and Features
Personal credit is a sum you can borrow for any day-to-day goal. Unlike large installment or business loans, this type is known as a quick decision for temporary needs. It usually can be repaid in several months or years and doesn’t require a perfect score to pass the inquiry. In short, they are much easier to obtain and repay, which makes the option popular among ordinary people.
Another essential reason is online availability. Such a variant is possible if you borrow from a private lender. Dozens of companies on the Internet offer their help to people who cannot afford banks and credit unions. These services aren’t so demanding and seem affordable for almost every adult American with a stable source of income.
Top-5 Reasons to Choose It
The purpose of borrowing differs from one case to another, and there isn’t a universal solution for each of them. However, the tendencies show personal credits as one of the most popular choices.
This type is intended for various goals and applications. Called “personal”, it covers all spheres of people’s lives from typical events to purchases. Depending on the variation, they offer different terms of repayment, rate of interest, and other peculiarities. The most common types are:
- divorce and marriage;
- car repair or purchasing the auto;
- education needs – university cost, school expenses;
- consolidation of previous debts. Statistics shows, it’s the most common purpose to borrow among Americans in 2021;
- emergencies – medical costs, accidents
- rent or mortgage payments
- large purchases – accommodation, home appliances;
However, there are universal variants that don’t require a particular purpose. If you’d prefer to keep privacy and borrow money without mentioning a reason, it’s an appropriate variant for you.
#2 Better Than Credit Cards
Not everyone realizes the difference between cards and small loans. Why should you borrow at some institutions, if cash is always available on your credit card?
In truth, several differences make both options suitable for particular situations. The key advantage of credits is a lower interest rate. Bankrate says the average interest rate for the card in February 2021 is 16,04%, while private lenders most commonly demand 11,84% annually.
Sure, the number isn’t so clear. The rate also depends on your history and score.
Average Interest Depending on the Credit Score
As you see, sometimes loans are more expensive to turn back. This way the lender compensates the risk he meets, giving money to a customer with a poor financial state. But in such a case, you better think of debt repayment than taking even more money.
#3 Does Not Require Collateral
The loans are divided into 2 major groups – secured and unsecured.
Secured ones require collateral – it is an asset the lender uses as a security for his money. If the borrower cannot repay the sum during the long period, he must provide bail as compensation for the sum he owes. Such an approach is commonly used for large sums of money given in banks. Most commonly, the client uses these types of bail:
|Secured loans||Unsecured loans|
|Requires collateral||Doesn’t require collateral|
|Easier to qualify for||Harder to qualify for|
|Lower rates||Higher rates|
|Higher borrowing amounts||Lower borrowing amounts|
Such credit has one advantage – they offer a lower interest rate since the risk for the company is respectively low. However, it’s a big risk, especially in a changeable economic situation, when no one can forecast the coming events. In such circumstances, risking your property to obtain some money is unreasonable.
For its part, personal loans are unsecured. You needn’t any kind of property to take it. It makes the approach affordable for any person, and safer for your assets.
#4 Available Online
You don’t need to visit any offline institution to take a personal loan. It’s a significant advantage in case of emergency or urgent need of money. You can save time on waiting in line and filling the papers, using protected websites.
Dmitry Dolgorukov, a co-founder of HES Fintech software, is sure that online lending won’t lose its popularity even after the pandemic.
«Despite the turmoil, digital trends in the financial sphere are more relevant now than ever before. Even after the crisis ends, it’s likely that the world as we know it will be changed, and the alternative lending sphere with it»
The world has drastically changed during the last year, and we hardly will return to our usual lifestyle. It’s good news for borrowers – the market of digital loans will develop and offer more profitable opportunities. The increasing competition among such companies forces lenders to provide better and better services, attract new clients with convenient conditions.
#5 Quick Response
To attract new customers, online lenders provide comfortable conditions. Thus, the funds from private creditors are available within 24-48 hours straight. This is the fastest source of money among all reliable sources.
While online lenders promise to send your funds in less than 5 days, banks and credit unions require nearly a week for this procedure. Payday and other quick credits are even faster – the money will be on your card in 1 day. A personal loan isn’t the only solution for money troubles. Other variants have their own pros and cons, essential for different situations. However, the popularity of this option is more and more visible in American society.