The ideal way to acquire new assets such as a new home, a car or any other machines, equipment or furniture for your household is through personal income or personal savings. However, in most cases your income will not be enough to help you to incur a huge capital expenditure such as buying a new house.
On the other hand, to raise enough funds through monthly savings might take a long period of time before you have pooled enough cash to acquire your desired new asset. Loans therefore come in to help solve this challenge of shortage of cash to be utilized in capital expenditures or even in other things like funding your education or paying hospital bills.
Traditionally, this role has been played by the banks which act as the intermediary between the person with surplus income deposited with the bank as savings and the person who needs to borrow some cash to meet their immediate financial obligations.
However, with the growing demand for loans from the public and the competition from the government securities which also target cash from the commercial banks, getting a loan from the banks is becoming more challenging. Tough regulations on credit scores have been introduced and other conditions imposed on the borrower makes it difficult to access credit at the time when you want to. This therefore creates a credit gap within the markets that other alternative sources of loans come to fill as discussed below.
3 Alternatives To Banks For Your Loan
#1. Peer To Peer Lending
Also referred to as crowd lending, peer to peer lending is a new concept that utilizes online platforms to bring together people with surplus cash to invest and borrowers looking for lenders to advance them loans for a given period of time. On the online platforms, individual investors with cash to lend choose who to lend to from the listed of borrowers on the site.
Having eliminated the banks from the equation, the borrowers and lenders are both able to get fair rates without having to go through the bureaucratic credit scoring and other conditions imposed by the mainstream commercial banks when they are reviewing your loan application.
Peer to peer lending is catching up very fast across the world and with the high growth rates comes the risk of having fraudulent players in the market among other online risks. To get the right peer to peer platforms to sign up with and get a personal loan, you will need to use independent online reviews to screen your available choices before settling on the best platform to use.
For instance, LendingTree 2017 Review gives you a detailed summary of what they do, their service offerings, their legality, their customer service quality, their weakness and their competitive advantages among other things. Equipped with such information for several peer to peer lending platforms, you are then able to choose prudently the best that suits your needs.
#2. Borrowing From Shylocks
Shylocks are individuals who lend to persons and businesses outside the mainstream commercial lending channels and in most cases they operate in urban areas. Shylocks charge very high interest rates but on the other hand they lend to you the amount of money you want instantly.
They will however require you to provide some form of collateral which could include anything within your household of equal or more value than the loan you are getting from them.
The advantage of borrowing from the shylocks is that you get the loan instantly and without many conditions. Shylocks rarely conduct background checks to ascertain your credit score or lending risk. To cover themselves against the high risk of lending to an individual who might default, they therefore charge exorbitant interest rates on their loans.
The high interest rates come as a disadvantage to borrower especially considering the fact that shylocks tend to lend money for a short period of time.
#3. Borrowing From Friends And Family
Family and friends also form a good source of personal loans especially when the amount needed is not very large. The use of the money can also dictate whether family and friends will be a good source of the loan.
For instance, when borrowing to fund your education or to pay hospital bills, family and friends may be a perfect source of short-term loans since they will easily lend to you with minimal conditions. The risk here is that if you do not repay the loan on time as agreed, you might end up breaking your family relationships or hurt your friendships.
Based on how much money you would like to borrow and the reason for borrowing, you can choose from among the above three sources of loans. Whichever option you go for, you must ensure you are able to meet the lending conditions which include the interest rate charged and the credit period provided.
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Hi, my name is Jon and I run Penny Thots. I’ve been interested in personal finance since high school and love writing and talking about it. You can learn more about me in the Authors section of this site.