Big Bank Burdens
When people search for a loan, they usually go to one place and one place only: the bank.
On the surface, this decision appears to make sense. Providing loans is an essential part of the service of most big banks, so they seem a natural choice for your borrowing requirements. You can even apply online these days; fill in a quick form, click a few ‘submit’ and ‘agree’ buttons, then wait for the money to land in your account.
Sadly, the process doesn’t always work out quite as smoothly as that.
The perils of big banks
By far the largest issue you will experience with large financial institutions is the way they decide to lend money. Lending criteria is data-driven. “Data-driven” sounds like a good thing, but it can be problematic– and here’s how:
Let’s say that Sharon wants to borrow money to develop her home. Her mortgage is with the same bank, and she will add potentially thousands of dollars to the value of her home with such a loan. However, her history with the bank isn’t great, and her credit isn’t as good as she might hope.
On the other hand, Mike wants to borrow money to go on holiday. He has other, substantial debts, but is managing to make the repayments so his credit is largely unaffected.
On a data-driven analysis, Mike is actually the preferable candidate for a loan, despite the fact that his purpose for the money is decidedly more dicey. Yet big banks use this data-driven approach to make all of their lending decisions.
Smaller, private loan companies don’t rely as much on the raw data. They can apply a wide range of different stress tests to judge the likelihood of payment, how viable the use of the loans is, and take into account relevant financial data outside of a basic credit scoring check. This means the loans from smaller companies are more personalized and, ultimately, better equipped to make good lending decisions.
The rigidity of big banks
One of the additional problems with the big bank lending providers is that they are very rigid. Terms, conditions, interest payments, loan amounts– they’re all decided at a central source. This means that the lending offered by big banks is a “one size fits most” approach; you have to fall into their set patterns. The impact of these arbitrary limits can be incredibly frustrating– even down to something basic, like wanting to borrow $1,450 rather than a round figure. With a conventional bank, their “one size fits most” approach might not allow this.
With smaller providers, the lending is far more flexible. You can borrow the amount you need and not a penny more or less; and you can repay it over whatever number of months you want to. You will also usually be able to obtain a loan in a much quicker time, as smaller lenders are unlikely to be dealing with a glut of applications at once, so you receive a fast and efficient decision in the shortest possible timescale.
Wrapping it up. . .
If you’re looking for a quick, advantageous, and catered-to-you loan, the big banking institutions can’t even come close to the myriad benefits offered by smaller loan companies.