A bank or non-bank loan? When is which one advantageous?
Posted On April 12, 2020
The current hectic times bring situations and problems that can often only be solved by a quick financial injection. Whether it is a necessary repair after an accident in the home, or the replacement of faulty and old electrical appliances, money is needed for everything.
Perhaps you have – if you belong to the happier part of the population – saved, and you can use them to “pay for the holes” that no one planned or counted on. However, many households today have a really tight budget and the necessary financial reserve is simply not available in such situations.
The only option that comes to mind at that time is to take on the burden of debt for a while and borrow money from someone. It is practically impossible to get money from acquaintances today, but there is often an unpleasant feeling in the game that you have to “beg” your loved ones.
It is therefore easier to use institutions that are directly involved in lending money to obtain the necessary financial amount: banks or non-bank companies.
What are the advantages and disadvantages of obtaining a loan at a bank and a non-bank? When is which type of lender more appropriate and advantageous?
The cheapest loans are provided by banks
The indisputable fact and truth is that in terms of RPM (annual percentage rate of charge), the most advantageous loans that you have the opportunity to obtain in banks are.
Everyone owns at least one bank account, and you certainly do not represent the benefit either. So you know for sure that you can ask the bank to set up a so-called allowed overdraft to your current account (also called an overdraft). This is the type of loan you start to draw when you run out of money in your account.
The maximum amount of the “minus” amount is always determined by the bank based on the analysis and evaluation of your monthly income and expenses. Most often, the overdraft limit is around 1000 dollars.
Today, every bank also offers the opportunity to apply for a credit card. It allows you to pay for goods and services with it, with the provision that it is automatically a loan.
So we can say that as soon as you pay by credit card “in the red”. In other words, you do not pay from your own, but from borrowed. However, the advantage is that for each credit card there is a so-called an interest-free period (usually 45 to 55 days) during which, if you “reset your minus”, you do not pay any interest on the money borrowed.
Then there are the consumer loans. In principle, banks provide two types of “appliances” – special purpose and non-purpose. For the former, it is necessary to use the money for a precisely predetermined purpose, for the latter you simply borrow the money and you do not have to explain to anyone what it will be for.
In this context, the rule is that special-purpose loans are always more advantageous because they have a more favorable interest rate than non-specific loans. This is because when a client asks the bank to provide money, the bank also assesses its risk, ie the degree of potential inability to repay the loan.
If the bank knows what you intend to use its money for, it has a better overview of you, and therefore a higher certainty that you will not “reconsider” the money, so to speak, and that you will not end up being an undisciplined non-payer.
If you want a good loan, you can’t avoid verification!
And this brings us to an important principle that is firmly valid in the banking world: if you want to borrow as cheaply as possible, you must provide the bank with as much information as possible about yourself. The less relevant data the bank has about you, the less trustworthy clients you become for it!
Therefore, when applying for most loans with a favorable RPMN, the banks will first knock you out to find out how you are actually doing with your solvency. If your creditworthiness in the eyes of the bank turns out to be low, it will certainly be reflected in higher interest on the provided loan, in the worst case, they will evaluate you as an unfit client and you can forget about the money!
In addition, the banks will check you in the credit registers to find out what your payment morale is, ie whether you have repaid your loans properly and on time in the past. If this is not the case – and it does not even have to be a big “transgression” (for example, you have been late for a short time with the monthly lease payment) – the result is in most cases uncompromising – your bank will reject your loan application!
When borrowing from banks, you will also have to provide the amount of your income and guarantee the repayment of the loan – either by finding a suitable co-borrower or guarantor, or by mortgaging your property or movable property.
Non-banknotes = less lustration, but higher interest
Although it is not possible to say about non-banking companies that they do not verify their potential clients without exception, the truth is that they tend to be much more benevolent in assessing their creditworthiness.
Non-banknotes, like banks, have the right to inspect credit registers to see which category of clients you belong to as a loan applicant: honest or defaulter. However, the reality is that they do not always use this privilege, or even if they look at you in the register, they have no problem ignoring your “transgressions” from the past.
So we could say that their tolerance threshold is set much higher than in the case of banks, and the chances of getting the necessary financial injection are definitely much higher than in traditional banking houses. Of course, it must be taken into account that the higher risk level is taken into account by non-banknotes in the form of a higher RPMN (= total loan repayment).
Today, however, they face high competitive pressure and in the market they have to compete for the client not only with each other but also with banks. This has a significant benefit for the consumer: today, it is far from the case that for all credit products, non-banknotes are set to have many times higher interest rates than banks. Of course, the differences in how much you repay for your loan still exists, but they are no longer as significant as they used to be.