Taking out a loan can be an exciting step that takes you closer to realising a dream or achieving a milestone. From starting a family to launching your own business, it is essential that you understand what options there are for you should you need capital.
In this guide, we will discuss what the differences between borrowing from traditional banks and online lenders may be. We will also explore how other avenues through which you can take out a loan, if you discover that by the end of this article you are not satisfied with either option. If you have made up your mind and are looking to borrow money in Sweden, you can work with a loan comparison provider to find the best option for you. Learn more here.
What to consider when taking out a loan
Before taking out a loan, you should understand how to evaluate whether a loan is the best one for you. To do this, you must know the purpose of your loan application, how much money you would like to borrow, the repayment terms you are comfortable with, and the consequences of being unable to repay your debts. These are all standard factors to think about before you make an application.
If you have considered thoroughly what your needs are, you can begin thinking about the different loan providers out there you can choose from.
Taking out a loan with a traditional bank
Banks typically have physical branches and allow borrowers to choose between filling out a loan application in-person or online.
Benefits
The main benefit of taking out a loan with a traditional bank is its stability. Most traditional banks have long-standing reputations and established track records. This may provide borrowers with peace of mind that they will be treated fairly, and the process will be transparent.
As traditional banks prioritise relationship building with their clients, borrowers may also be able to receive personalised services. Banks may also aim to educate borrowers holistically and offer education on financial freedom, how to set financial goals, and alternatives to taking out a loan that borrowers could seek, such as opening a savings account, investing, or trying out other banking products.
Finally, those who borrow money from traditional banks have the potential to benefit from lower interest rates. This is especially true for borrowers with strong credit profiles and a proven track record of good financial health. Lower interest rates can provide significant cost savings over the loan term.
Limitations
However, there are not without drawbacks when it comes to loan applications with traditional banks.
One limitation that borrowers may encounter is a lengthy application process, often involving extensive paperwork and longer approval times. Compared to online lenders, banks may have stricter eligibility criteria for loan approval, such as a better credit history and rating, collateral or guarantor demands, and tiered borrowing thresholds. This may make it more difficult for borrowers to qualify.
Another limitation borrowers may encounter is limited accessibility. Many traditional banks with physical branches with set opening hours, which could prevent borrowers from enquiring about their applications or make one outside of those hours.
Finally, traditional banks may have less flexibility in their offered loan terms, and they may be less successful in adapting to individual borrower needs. This means borrowers may not be able to get the specific, personalised loan term that they are looking for, or they may have trouble finding a repayment schedule that they are happy with.
Taking out a loan with an online lender
Online lenders operate completely digitally, often on a bespoke, secure platform, where borrowers can fill out applications.
Benefits
The main benefit of taking out a loan with an online lender is convenience. Borrowers can often complete the entire loan application process from the comfort of their homes or offices, as long as they have a working device connected to the Internet. With an abundance of online lenders in Sweden, borrowers also often have no trouble finding a lender whose requirements they meet.
Many convenient application processes come with speedy approval and funding. Online lenders typically are used to having streamlined processes and quicker approval times, which enable borrowers to receive funds faster compared to traditional banks. Approval rates are also likely to be higher, making it easier for borrowers with less-than-perfect credit ratings to secure the loan that they need.
Finally, online lenders may provide a wide range of loan options, including offering access to specialised loans. It is common for online lenders to offer small business loans, personal loans for specific purposes such as home renovation, or loan-related services such as refinancing and consolidation. Borrowers can choose from more targeted options to really get what they need from the loan.
Limitations
Nevertheless, online lenders typically have higher interest rates than traditional banks. These higher interest rates are set in proportion to the increased risk they assume by lending to borrowers with varying credit profiles.
Borrowers who prefer personalised support or in-person services may also find operating through digital platforms unsatisfactory, as online lenders typically offer limited access to in-person guidance.
