Availing a loan to meet various commitments and to fund emergencies is not uncommon any more. Off late there are many options for individuals to choose from, which makes it tougher for individuals to make the right choice.
While there are banks that are traditional and established sources of finance, a lot of private lenders like online lenders, peer to peer lending sites, non-banking financial corporations, etc have also established themselves in the loan market from where you can avail of a personal loan easily.
However, there are many differences between availing a personal loan from a bank vs a private lender. We bring you a comparison between them on various factors of a personal loan to enable you to make the right decision.
The first and foremost factor that comes into your mind when you think of availing a loan, is the interest rate as it will determine your future EMIs. The interest rate charged by banks vs private lenders can vary.
The interest rate charged by the banks starts from 10.5% p.a. onwards, while those of private lenders vary in a wide range. Some NBFCs personal loan interest rates start at 14%. On the other hand, online lenders like Money View offer personal loans at an interest rate that starts from 1.33% per month.
The Interest rate offered by banks or private lenders is no more a standard figure for all applicants, it varies between applicants depending upon their credit score, employment status, employer, other obligations and age as well.
A personal loan is the only loan that can be availed in an emergency. When in an emergency, the speed in which the required loan is made available to the individual is of prime importance.
Private lenders include online lenders too. Some of the online lenders like Money View ensure you can check your loan eligibility in 2 mins and the loan is disbursed to your bank in a matter of 24 hours from the time of approval. This is possible as the entire process of availing a loan happens online without the need for you to visit any branch or submit hard copies of documents.
Whereas banks that process loans in the traditional way may take a longer time, often between 3-7days. Many banks have also come up with online channels for personal loans, but they remain restricted to their existing customers meeting certain eligibility criteria
The amount that is needed as a personal loan can differ between individuals. Similarly, the maximum amount of loan that you could avail as a loan can also differ between lenders.
Banks generally offer a higher sum of amount as a personal loan. Some banks do offer up to Rs 40 lakhs for a personal loan, depending upon other factors. The maximum amount of loans offered by private lenders varies from lender to lender. It can start from as low as Rs 3000 and can go up to Rs 15 lakhs
Personal loans are short-term unsecured loans, hence the tenure of the loans remains short. Most of the banks lend for tenures between 4-5 years. Some of the private lenders can have shorter tenures ranging from 1-5years. This depends on the amount of the loan availed and the risk profile of the applicant
Banks and other traditional lenders require high levels of creditworthiness and other criteria like a particular level of income, etc to be eligible for personal loans.
At the same time, private online lenders like Money View allow loans at much-relaxed eligibility criteria. Their minimum credit score requirement is 650 on CIBIL or 750 on the Experian. The minimum income criteria also start from Rs 13,500 which makes it easier for many individuals to be able to be eligible for easy personal loans.
Another important factor that adds to the cost of the loan is the processing fee charged on the loan. Banks and private lenders charge a processing fee that depends on the amount of the loan borrowed. The processing fee range for banks stands between 0.5% -2.5%. Private lenders could charge a slightly higher processing fee.
For your easy understanding, featurewise comparison for banks vs private lenders are presented in a tabular format
| Banks Loans | Loans from Private Lenders | |
|---|---|---|
| Rate of Interest | 10.5% p.a onwards | From 1.33%p.m for online lenders |
| Processing Time | Can go from 3-5 days | Approval in 2hrs, amount disbursal as early as 24hrs |
| Maximum Amount of Loan | Rs 10000 to Rs 40 Lakh | From Rs 3000 to Rs 15 lakhs |
| Tenure of the loan | 4-5 years | 3 months to 5 years |
| Eligibility Criteria | Strict eligibility criteria including high credit score | Relaxed eligibility criteria |
| Processing Fee | 0.5-2.5% | 2% onwards, some lenders charge a fixed fee |
So, you can see here that there is no clear winner when it comes to a comparison between bank loans vs loans from private lenders. It may depend upon your need, your relationship with the bank and other factors such as how quickly you need the loan, your credit score, etc.
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