Lending has become a fact of life. People on low incomes borrow to make ends meet, those on high incomes borrow to undertake projects, and businesses borrow to ensure they can successfully meet the challenges set by a competitive industry.
If you’re considering borrowing, you’re not alone, current estimates suggest the value of personal loans exceeds $163 billion in Australia.
Whether you’re an individual or a business the options for borrowing are similar. You can choose between bank loans and private lender loans. But, businesses may prefer to use a corporate finance specialist as they have a much better understanding of business needs. You’ll also find they are generally more supportive and it’s easier to get a loan, providing you have a viable proposition.
When choosing a loan you need to consider which is the best route for you. To do that you need to understand the choices available.
As the name suggests, this money is loaned to you by the major high street banks. You’ll need to satisfy their criteria in order to get a loan. This generally means having a good credit score, clean financial history, and a breakdown of your income and outgoings.
The bank can then be confident that you will repay the money they lend you.
The interest rate you’ll be given on a bank loan will depend on how well you fit the criteria. The closer you are to perfect the lower the interest rate, and vice versa.
Bank loans can be secured against your property or a vehicle, or they may be unsecured, where they rely on you to repay the debt.
In both instances you’ll find there is plenty of paperwork and it’s a time-consuming process.
In contrast private lenders will often require less paperwork and will often not look at your credit score or current finances. They are likely to insist on security against the loan. This can mean a charge over something you own or it can mean a portion of the profits you make from a specific business venture.
Interest charged on private funding is likely to be much higher than a bank loan, this is because the finance is generally easier to obtain and the private lender has more to lose. In general private lenders are smaller concerns and will find it more difficult to pursue the money if you’re unable to pay.
It is worth noting that private lenders usually offer a very fast service, you can often access the money on the same day, making them the better option if you need emergency funding.
Private lenders provide finance for those that need it. But, if you have the time you’ll find bank loans are a better option. The more complicated application process gives you more protection as well as better terms of repayment. It doesn’t matter if you’re looking for corporate finance, a personal loan, or a mortgage, the established banking institutions are still the preferable option.