Which Is Better: Private Lenders Or Banks? | Bankrate (2024)

Which Is Better: Private Lenders Or Banks? | Bankrate (1)

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When evaluating personal loan lenders, you can choose from traditional banks and private online lenders. Bank lenders typically offer better rates and the added security of working with a well-established lender, but loans from private online lenders are often quicker and easier to get.

The best option for you depends on your specific circ*mstances. If you lack credit history or have poor credit it may be easier to get a loan from a private lender. If you have a good credit score or an established relationship with a bank, you will likely qualify for better lending terms.

To determine which option will work best, consider your credit health, the interest rate you can afford and additional features that might benefit you, such as online versus in-person service.


  • Average APRs for online personal loan lenders range from 5.99 percent to 35.99 percent.
  • APRs for personal loans from banks range from around 7 percent to 25 percent.
  • 56.2 percent of Americans with personal loans borrowed money from a bank in 2021.
  • 32.2 percent of Americans with personal loans borrowed from online lenders in 2021.
  • 78 percent of Americans prefer digital banking to in-person banking.
  • Borrowers can save an average of 35 percent by shopping around before choosing a loan.

Comparing banks vs. online lenders

BankOnline Lender
Lower interest ratesHigher interest rates
Slower application processFaster application process
Rigorous approval processEasier approval process
More regulatedLess regulated

Bank loans tend to be more highly regulated, meaning eligibility and borrowing requirements are less lenient. They also take longer and often require in-person visits to finalize the loan. Since the process of getting a bank loan is more rigorous, banks are typically able to offer lower interest rates and sometimes provide perks for existing customers.

Online lenders are less regulated than banks, allowing faster application processes and more lenient eligibility requirements. However, online lenders tend to have higher interest rates and fees. The primary advantage of an online loan is convenience. You can complete the entire process online and funding is typically available within the week.

Deciding which is right for you

Before choosing which type of lender is right for you, there is a lot to consider. It is always best to shop around and compare rates from multiple lenders before settling on one. You will need to consider the rates, loan terms, requirements, closing costs and fees various lenders offer. You also need to make sure you know your credit score and are confident about what you can afford before applying.

Are banks better for me?


  • Higher chance of lower interest rates
  • Could offer special rates to existing customers
  • Continue servicing your loan


  • No pre-qualifying
  • Pressure to sign up for other financial services
  • Stricter eligibility criteria

Getting a personal loan from a bank may be the best move for you if you have an existing relationship with a bank, you have good to excellent credit and you have time for a longer approval process.

The benefits of taking out a personal loan from a bank are a lower interest rate, potential offers and perks for existing customers, in-person customer service and the consistency and security traditional banks offer. While online lenders have the option to sell your loan to another servicer, banks tend to see loans through to the end.

  • Lower interest rates: Rates are typically capped at a lower amount for banks than they are for online lenders. Minimum interest rates may also be lower.
  • Longer processing time: While many banks offer quick funding comparable to online lenders, bank loans typically take longer to process, and you may have to visit a branch in person to apply.
  • Limited prequalification options: Many banks don’t allow you to prequalify before applying for a loan, making it more difficult to predict your monthly payments. Banks also have stricter eligibility requirements, meaning that borrowers with bad credit or little credit history may have difficulty qualifying.
  • Pressure to sign up for other services: One of the biggest advantages of working with a bank is the perks of having an existing relationship with the bank. However, this can also mean that there will be pressure to sign up for additional financial services.

Are online lenders better for me?


  • Easier to compare lenders and rates side by side
  • Financial literacy and lending resources
  • Potential to negotiate loan terms


  • No in-person customer service
  • Higher interest rates
  • Risk of scams

Getting a personal loan from an online lender may be better for you if you are worried about being able to qualify, if you need the money quickly or if you prefer the convenience of a fully online experience.

For new borrowers, prequalifying could provide a better understanding of your financial situation and your ability to borrow.

  • Online educational resources: An online loan could also be beneficial if you want to learn about lending and financial skills, as many online lenders have online resource centers with various calculators, informative videos and other financial literacy tools.
  • Prequalification is available: One of the biggest benefits of online lenders is that they typically allow you to prequalify. This process allows you to see what you may be eligible for if you applied, based on a soft credit pull that does not impact your credit.
  • Higher interest rates: Online lenders also come with risks. Since they typically have less strict eligibility requirements, online loans typically have higher interest rates than bank loans. You should never take out a loan unless you are sure you can make the monthly payments, including interest.
  • Potential scams: Online loans also come with a greater risk of scams. Since online lenders are less regulated and the internet is relatively new compared to brick-and-mortar banks, it is important to make sure you choose from verified lenders. To avoid personal loan scams, compare top lenders and read customer reviews before choosing a lender.
  • Easier to qualify: Loans from online lenders tend to be popular among borrowers with bad credit since the requirements are less strict and there is some potential to negotiate loan terms. Consider looking at bad credit loans if you don’t have good credit. Rates may be higher, but if you need the funds and can afford to make payments, bad credit loans can be helpful.

Other places to take out personal loans

While banks and online lenders are two of the most popular personal loan providers, other options exist. You can also take out a personal loan from a credit union, peer to peer lender or a point of sale installment loan from a store if you need the loan for a certain item.

Credit unions

A credit union is a member-owned financial institution. You typically need to be a credit union member to access its services. They often offer lower interest rates and fees than banks, and the application process is a bit easier once you are a member. To join a credit union, you typically need the same documents to open a banking account, including a government-issued ID, proof of address, etc.

Peer-to-peer (P2P) loans

Peer-to-peer loans are loans that an individual or company issues. P2P lending platforms allow you to submit a single application and be matched with lenders that might work for you. This is a good option if you are having trouble qualifying elsewhere or if you want the ease of submitting one application and having lenders come to you.

Point-of-sale installment loan

Point-of-sale installment loans are loans issued by a retailer that allow customers to buy an item immediately and pay it off in installments. This option may come with a discount or interest-free period, which could be a solid option if you plan to take out a loan to purchase the item. However, interest rates can be high, and taking out this kind of loan is generally not advisable.

Which Is Better: Private Lenders Or Banks? | Bankrate (2024)
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