7 Differences between Taking a Bank Loan and Taking a Loan from a Licensed Moneylender

Banking is a business that is distinct from a business that solely deals with money lending. Money lenders typically advance their own money while banks function by accepting deposits from their customers and withdrawals are regulated. Bank’s accumulate funds can be lent to borrowers against securities or collateral. Additionally, depositors are paid interest by the banks and deposits can be withdrawn.

Moneylenders do not usually receive deposits from their customers and even if these types of deposits were to be received, they are not required to pay a standard interest rate on deposits and they cannot be withdrawn. Additionally, when credit regulations are stringent, banks are allowed to borrow funds from other banks, an option that money lenders do not have.

The service and experience you get can be different between money lenders and banks, this is why it is essential to think about these factors when comparing loans. Ease of access is among the key benefits of borrowing from banks because consumers are allowed to combine different financial products while a money lender may provide competitive rates.

Impact of Technology

Technology plays a significant role in various industries, including the lending sector. Since time immemorial, lending facilities in Singapore have been dominated by banks and other financial institutions. This made it challenging for startups and small businesses to access the capital they needed for their ventures.

They were compelled to rely on an informal and seemingly disorganized lending industry to handle their urgent financial requirements. People were borrowing cash from money lenders who subjected them to astronomer interest rates or seeking impractical alternatives such as their friends or family members’ life savings.

With widespread accessibility to the internet within the country and more people quickly adapting to technology, the lending sector in Singapore has become much more organized and efficient. Companies have transformed the lending methods that have been used for years.

Technology continues to change the loan process and other aspects of financial transactions in innovative ways. From the moment you start interacting with a lender to processing the loan and disbursing funds, technological advancements have created a revolution in online lending. This means more people can have access to funding and it has become easier and more affordable for borrowers to get the loans they need.

Loans from Banks and Money Lenders

Money lenders usually provide limited smaller loans according to the borrower’s income. Lenders are available to help people deal with short-term financial needs. This is why it may not be realistic to apply for loans such as home loans to purchase a new home when relying on a money lender. 

The major differences between the two entities are their services. Money can generally be kept safely at a bank, be able to access loans, invest and many other services. However, a licensed moneylender can only provide personal loans. There are also some significant differences in their lending practices.

Evaluating Credit

In comparison to banking institutions, moneylenders are usually less stringent when reviewing the borrower’s credit report or score. Moneylenders usually deal with smaller loans and charge higher interest rates which are attributed to an increased risk of defaulting. Moneylenders still need to determine a borrower’s financial capabilities through aspects such as home ownership and income. Income status is applicable to both the employed and self-employed.

Credit checks are the main distinguishing factor between banks and licensed moneylenders. Moneylenders do not usually emphasize on credit ratings. Several banks can reject applications instantly according to their policies. This occurs when the borrower has a low credit rating. Moneylenders are less restrictive and find different ways to accommodate their customers. Collateral is an option that can be useful when trying to secure a loan but credit score is not a crucial factor for most money lenders. This is due to the loan amounts being relatively small, compared to the amounts that banks provide.

Interest

Moneylenders let their customers know what the specified interest are and are likely to charge more than banks. These rates can be quite high and depending on how costly the loan is alternatives such as credit cards can be considered for affordability. If you opt for a credit card, spare some time to shop around for the right card and good deals.

Loan Amount

Licensed moneylenders usually issue smaller loans. One of the reasons for this is that the companies are often small and serve certain financial needs in the region. The process of borrowing from a bank can be tedious and cumbersome because of the strict rules pertaining to approval.

Licensed lenders provide services to people who require fast cash. The loan can be used to cater for unexpected bills or emergencies. Customers who do not have sufficient savings to cover these types of costs or need smaller amounts can opt for a moneylender. However, for larger expenses such as mortgages, a bank is preferable.

Access to Information

Banks are usually open about their interest rates. On the other hand, moneylenders are often reluctant about showcasing their rates online. Comparison sites are useful for making it much easier to find out about the rates and choose lenders.

Loan Process

It is easier and faster to take a short-term loan from a licensed lender than a bank. After visiting the moneylender, the process begins with completing an application form and the credit risk determines the interest rates offered.

Moneylenders ensure that the loans are ready within the shortest period of time possible. A borrower who has good credit is likely to get the loan faster but the process is generally speedy and easy regardless of the customer’s situation.

Banks take a longer time to approve loans because the approval process is closely monitored by management. Another aspect of the process is the loan amount but the procedure is applicable to different types of loans. A licensed moneylender is a worthwhile option for personal loans when you need the cash fast.