28 March, 2025 | 11:01 IST
As a borrower, you have the option to secure a loan from both banks and private lenders. While banks offer lower interest rates, private lenders provide a quicker and more hassle-free process. So, where should you take your loan from? The right choice depends on understanding the key differences between bank loans and private lender loans, including factors like interest rates, approval time and flexibility.
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A bank loan is a financial product offered by banks, regulated by the Reserve Bank of India (RBI) under the Banking Regulation Act, 1949.
If you have a good credit score and have enough time to wait for the application process to be concluded, taking a bank loan can be a great option. Banks have strict criteria for deciding the eligibility for getting loans. You have to provide a lot of documents and information such as bank statements and employment history.
Flexibility is one of the main advantages of private lenders. NBFCs, individual moneylenders, peer-to-peer lending platforms and private finance companies are some of the common types of private lenders in India.
Compared to bank loans, documentation is considerably less when applying for private lender loans. The main concern of a private lender is to judge if a person can repay the loan based on their current financial status.
If a person wants a loan quickly and doesn’t want to go through the formalities of documentation, then they can opt for a private lender loan.
ALSO READ: Personal Loan Eligibility: Check documents needed and other important factors
Here are some of the areas where private lenders and banks differ on loans:
Private lenders don’t follow such strict practices. Such an approach ensures a much faster loan approval.
Since private lenders are willing to take a lot of risk in lending, they are also likely to charge a much higher interest rate. It is important to note that private lenders seldom impose any additional charges.
You can modify the terms and conditions to a much greater extent when you borrow from a private lender. This is one of the main advantages of getting loans from private lenders.
ALSO READ: Emergency loan apps: Check Pros and Cons before borrowing
To choose between a bank loan and a private lender loan, you need to choose your priorities. Start by comparing loan terms, borrowing costs and your financial situation to determine which option best suits your needs.
If you prioritise lower interest rates and transparency, a bank loan is your best option. If you need quick approval and more flexible terms, a private lender may be the better choice.
Moneycontrol, in partnership with eight trusted lenders, offers 100% online instant loans of up to Rs 50 lakhs. Simply enter your details, complete your KYC, and set up your EMI tenure to get started. Interest rates begin at just 10.5% per annum.
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