Should you go to a non-bank for a personal loan?
The banks aren’t the only ones able to provide personal loans. Finance companies, credit unions and independent lenders are all considered ‘non-bank lenders’ and can provide many (if not all) of the same kinds of loans that the major banks can.
But non-banks aren’t just “lite” versions of banks. They offer several unique benefits---especially with personal loans.
Read more: The Avanti Finance Personal Loan Guide: Everything you need to know about receiving, spending and repaying personal loans.
WHY GO TO A NON-BANK?
- More personalised service
While the major banks may have hundreds of thousands, or even millions, of individual accounts, non-banks have far fewer customers. This means they are often able to provide a more personalised service to their customers as well as develop more specialist loans for those with specific needs that the banks can’t cater for.
- Loans for the self-employed
It’s tough to get any kind of loan from the banks when you’re self-employed. Working for yourself means your income can be very different from month to month. Unfortunately, banks have very rigid lending criteria and a very low appetite for risk. They prefer to know for certain that you’ll be able to meet your loan obligations consistently---and a variable income makes that difficult.
Non-banks, however, are more flexible. They are generally more open to work with people who are self-employed, to get mortgages, car loans and, yes, personal loans too.
If you’re newly self-employed and don’t have heaps of tax returns proving income yet, non-banks can also usually approve with only a few months of statements, rather than the year or two that major banks demand.
- Bad credit loans
People with bad credit also often turn to non-banks for personal loans. If someone has had a missed payment or a default, they may have a credit score too low for the major banks. Non-banks are far more open. At Avanti, for example, we don’t think someone should be barred from getting a personal loan just because they’ve made mistakes in the past. Bad credit isn’t so much of a barrier with non-banks.
WHY NOT GO TO A NON-BANK?
If you aren’t happy with the banks or have had an application refused, a non-bank can provide a lot of positives. So why wouldn’t you go straight to a non-bank in the first place?
Non-banks do tend to have a slightly higher interest rate than the banks (but not always!). This is to off-set the extra risk we take on by lending to borrowers with lower credit scores or variable income. But the rates are usually only to the tune of an additional percentage point or two - and that’s better than not being able to get a loan at all.
One thing to watch out for when seeking a non-bank, however, is the presence of companies that offer quick, small loans in a short time frame, but charge extremely high interest rates. These are commonly known as ‘payday lenders’, due to the fact they often offer loans to last you until next payday. With these lenders, it’s easy to get trapped in a cycle of never-ending debt, and that ‘small loan’ you took out can cost double, triple or even more in the long run due to high interest rates and fees.
In short, if you’re having trouble getting a loan through a bank, a non-bank may be able to help you more easily - especially if you’re self-employed, have low or bad credit, or need a specific type of loan with personalised facilities.
Looking for a personal loan from a non-bank? Discover your options with Avanti Finance today.