When applying for a loan, the user’s doubts are legitimate, especially if we consider that banks increasingly place higher levels of hardness in their filters before granting financing. Therefore, evaluating the pros and cons of asking for a loan from the bank or seeking alternative funding is important.
It should bear in mind that alternative financing is not necessarily the magic bullet or the philosopher’s stone that will solve the financing problems that the bank poses to the average user. As we will see, this financing model can also become a trap for personal finances.
But what is alternative financing?
There is no single method of alternative financing. In fact, we could talk about methods as different from each other as:
- Quick loans
- Private-to-private lending
- Collaborative lending
We must leave apart the loans between individuals since they deserve different treatment and would not be given away within the financial system. However, they are still an economic operation, but we will focus on the other two tools.
| Bank Loan | Alternative finance | |
| Through the Internet | Not always | Practically always |
| Low/medium/high amounts | Yes | Yes |
| Good credit history | Very important | Important |
| Can you invest in them? | No | Yes |
| Can you renegotiate them? | Often | Often |
Quick loans
They have been a growing tool in recent years. They provide fast financing, usually through the Internet. They are used for low to medium amounts of money and do not have the hard filters like traditional banking.
The main advantages could be:
- Speed in the application and response process.
- Fewer filters when applying for the loan, can be accessed even with debts.
- Speed in crediting the money in the applicant’s account
The main disadvantages would be:
- Very high-interest rates that, in some cases, can border on usury.
- A tool that, if misused, can lead the user to over-indebtedness.
- An important part of the lending platforms are not regulated entities.
Collaborative lending
That is a different model from the previous one, although connected by Internet use. These are platforms through which, by presenting specific projects, can request financing. People participate in this funding, who, in turn, act as investors and obtain a return (the interest paid for the financing obtained).
The main advantages of this model would be:
- Obtaining better interest rates (both for those seeking financing and those seeking investment).
- Possibilities of financing not only for small amounts.
- Simple operations in the management of the processes.
The main drawbacks of this formula would be:
- Generally oriented more to business project profiles and not to personal loans.
- It is not simple to manage in search of personal financing (in fact, some platforms do not allow it).
- It requires knowledge of the medium (Internet) and new technologies.
When are you interested in a bank loan or alternative financing? |
||
Bank Loan |
Alternative Finance |
|
| Bad credit score | No | Yes |
| You need money fast | Sometimes | Yes |
| You have many banking products | Yes | Sometimes |
| You want to contract online | Sometimes | Yes |
| You want long terms to repay the loan | Yes | Sometime |
What to choose
Even with tougher filters, traditional banking offers better average interest rates than quick loans and better access to personal loans than crowdfunding.
However, as is increasingly the case in personal finance, the important thing is to consider what we need. For example, for quick financing, just a few days and a low amount of money that we are sure we can pay back on time, a quick loan through the Internet can be a good solution.
Or for example, if we are trying to finance a small or medium business project and are looking for alternative financing from banks, it could be collaborative loans. Through these, we can obtain better interest rates for this financing and, depending on the project, get even more financial support than expected.