When you're looking for a place to loan, the bank might be the most obvious choice for you. However, there are other alternatives out there that deviate from the traditional bank loans. Whether or not you'll go with the dependable bank or outside financing is completely up to you, but it wouldn't hurt to see the pros and cons of these options in plain view.

The Pros and Cons of Bank vs. Non-Bank Loans

Bank Loans

Bank loans are straightforward and is the more 'traditional' route when taking out a loan. Most people naturally gravitate towards their banks when they're in a pinch.


  • Have lower interest rates

Compared to non-bank loans, banks’ interest rates are usually lower because they are influenced directly by the commerce of the country.

  • Flexible loan terms (some banks can offer loans payable to up to 15 years or more)

Banks are able to give out bigger loans simply because they have more money. Housing loans aren’t the only kind of long-term loan you can get from banks. Even personal loan terms could be discussed and negotiated with most commercial banks.

  • Safe

Banks are often held to a level of prestige and are trusted because of their reputations. Banks follow regulations when it comes to money and thus the loans they give out. It’s highly unlikely that a bank will runaway with your money or impose some sort of scam on you.


  • Have stiff regulations and requirements

With safety and security come strict regulations and requirements, which is expected from bank. This only means that you might have to keep coming back to your bank more than one time for interviews or for documentation.

  • Applicant must have good credit standing

A good credit score is usually required when taking out a loan from a bank. If you have poor credit scores you will most likely be turned down for that loan.

  • Applications take a longer time to process

Because of these safety procedures, the application might take a little longer than most people would want. Banks could take weeks or even months to approve a loan.

Non-Bank Loans

There are many types of non-bank loans out there. They are called private lenders. Unlike banks, they usually cater to more short-term personal loans.


  • Less requirements

Private lenders often just require valid IDs and some sort of income statement or proof of billing for you to get a loan.

  • No credit history check required

Since private lenders aren’t banks, they won’t be asking for your bank statements or credit scores. You most likely won’t even need a bank account or credit card to apply for a private loan.

  • Faster approval compared to banks

Unlike banks, private lenders could approve loans as quick as 24 hours. Overall, they are much more relaxed when it comes to background checks and requirements.


  • High interest rates

Because private lenders have a higher credit risk when lending money, they implement high interest rates on their clients. This is also one of the ways that private lenders earn their own money.

  • Shorter loan term

Unlike banks, private lenders usually only lend short-term and in smaller amounts. Getting a loan as big as a housing loan could be difficult with private lenders. This also means that you need to pay them back within a couple of months and not years.

  • Risky

There is a risk that the private lender you are transacting with isn't registered with the government. There are many fake lenders who rip off borrowers through scams. They usually operate online.

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The Pros and Cons of Bank vs. Non-Bank Loans: 4.2/5 from 31 votes
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