Is It Better To Get a Loan Through Your Bank or a Private Lender?

Each type has its own pros and cons. Here’s how to decide whether it’s better to get a loan through your bank or through a private lender.

Updated: July 17, 2023

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The first step to taking out a personal loan is deciding on a lender. While there are a number of different types of lenders on the market, two emerge as the most popular by far: banks and private lenders. Each type has its own pros and cons, and understanding the differences can help you make an informed choice. Here’s how to decide whether it’s better to get a loan through your bank or through a private lender.

Key takeaways

  • A personal loan is a versatile source of funding that generally has lower interest rates than credit cards or open lines of credit.

  • While banks have strict lending criteria, they tend to offer lower interest rates to people with high credit scores.

  • Private lenders can be an excellent option for borrowers who have low credit scores or who need funds fast.

  • When shopping for personal loans, make sure to compare interest rates, fees, and available loan terms.

Differences between banks and private lenders

When you apply for a personal loan, your choice of lender can significantly impact your borrowing experience. Here’s how to make a solid decision.

It may be easier to qualify through your bank

Many banks have stricter lending criteria than private lenders do. Some also require extensive documentation during the loan application process. However, you may have some leverage if you have a longstanding relationship with your bank, since many banks prioritize their existing customers. For example, both Wells Fargo and Citizen Bank offer a 0.25% interest rate reduction for borrowers who already have a qualifying bank account and are enrolled in automatic payments at the time of application. This is a unique perk that’s not available with most private lenders.

You may be more likely to get a lower interest rate through a bank

Banks often have an advantage over private lenders when it comes to annual percentage rates (APRs). Due to their size, established reputation, and access to low-cost funding, banks are sometimes able to offer borrowers lower interest rates compared to private lenders. If you can secure a lower interest rate — even by just a point or two — that can result in significant savings over the life of your loan.

You’re more likely to be approved faster with a private lender

Today, most private lenders are online. (For that reason, we use the terms “private lender” and “online lender” interchangeably.) Thanks to that robust digital presence, online lenders usually issue loan approvals much faster than banks do. A quick lending decision may be attractive if you need funds urgently or want to take advantage of a time-sensitive investment opportunity.

You may need good credit to qualify for a bank loan

You’ll need an excellent credit score, stable income, and a solid financial history to qualify for a personal loan with most banks. Banks typically look at your credit history, income stability, and debt-to-income ratio to assess your eligibility. Private lenders, on the other hand, are more flexible and may take collateral or consider a borrower’s potential for future cash flow.

It can be easier to compare rates among private lenders

Some banks require borrowers to apply for loans in person or via mail or email. That makes it tough to shop around efficiently. Most online lenders, on the other hand, let you check your interest rates online through a process called prequalification. Prequalification will also give you an estimate of what your monthly loan payments will be. Some online platforms, including Navient Marketplace, even let you prequalify for multiple lenders at once. You can then compare rates and loan features side by side. Unlike filling out a formal application, prequalification doesn’t require a hard credit check and therefore won’t negatively affect your credit score.

You’ll be able to meet in person with someone from the bank

If you prefer a hands-on approach and face-to-face conversations with your lender, you may want to consider borrowing from a traditional bank. Banks let you schedule in-person meetings with loan officers or financial advisors to discuss your loan options, ask questions, and receive personalized guidance. Conversely, online lenders conduct most of their business virtually. That makes it tough to schedule face-to-face conversations when you need help.

Banks have a long history of providing loans

Banks are established financial institutions, many with long track records of offering various financial services. That extensive lending history usually makes them quite reliable. Many private lenders, however, are recent additions to the lending landscape. Many lack established reputations, putting the onus on the borrower to do extensive research to protect themselves against predatory lenders. One useful workaround is to borrow through lending marketplaces such as Navient Marketplace, which vets all the lenders on its platform. That way, you know you’re getting matched with a reputable institution.

Not all banks offer personal loans

Also keep in mind that not all banks offer personal loans. Banks are more likely to tailor their loan products and services to borrowers with good credit. As such, they tend to specialize in checking accounts, credit cards, and small business loans. If you’re specifically seeking a personal loan, you may find a broader range and potentially more favorable terms through online lenders. Some online lenders even specialize in specific types of loans or cater to specific types of borrowers, such as people with bad credit.

The pros and cons of getting a personal loan through a private lender

So, all that considered, should you get a loan from a private lender or your bank? It all depends on your financial situation and what you’re looking for. Here are some pros and cons to consider.


  1. Qualification criteria may be less stringent.

  2. The loan approval process is much faster.

  3. It’s easy to shop around and compare rates.


  1. Some private lenders offer higher interest rates.

  2. You’ll get limited in-person interaction.

  3. Most private lenders don’t have a long track record in the lending market.

The pros and cons of getting a personal loan through your bank


  1. You may be able to get lower rates.

  2. It’s easy to schedule face-to-face interaction.

  3. Banks have long lending histories and established reputations.


  1. It’s not easy to compare rates.

  2. Many banks have stricter qualification criteria

  3. Available loan products may be more limited. 

What to look for when you pick a lender

Whether you choose to go through a bank or a private lender, here are a few qualifying factors to consider:

  • Interest rate: Compare different lendersinterest rates to ensure you’re getting the lowest available to you.

  • Fees: Look for additional fees associated with the loan, such as loan origination fees or prepayment penalties. The loan origination fees should always be added to the total loan amount, so if you’re asked to pay any fees upfront, consider that a red flag.

  • Customer service: Does the lender have a good reputation for customer service? Read reviews to determine how responsive and helpful a lender is.

  • Prequalification: Not all banks offer prequalification. That makes it tough to estimate the exact interest rate range you’ll be offered without applying for the loan. Applying outright without prequalification will incur a hard credit check, which can hurt your credit score and make it difficult to qualify for other loans.

  • Credit requirements: Most personal loans are unsecured loans, or loans that don’t have collateral attached to them. The credit requirements for these types of loans can be strict. If you don’t have excellent credit, look for lenders that offer secured loans instead. Just keep in mind that you’ll have to have a large asset, such as a house or car, to use as collateral. If you don’t, try to keep an eye out for alternative lenders, which may check your income or employment history in addition to your credit report to build a more holistic view of your creditworthiness.

How to get the best rates on a personal loan

To secure the best personal loan rates, consider the following strategies:

  • Monitor national interest rates: Personal loan interest rates are often calculated based on national interest rates. When the Fed sets lower interest rates, that can translate to better loan offers. Keep an eye on the market and wait for national rates to drop before taking out a loan.

  • Improve your credit score: Be sure to make all your existing monthly payments on time and reduce credit card balances when possible. This will help you improve your credit score and qualify for better interest rates.

  • Apply with a cosigner: Consider applying for a loan with a cosigner. If your cosigner has a strong credit history and income, you may be able to secure better rates.

  • Leverage existing bank relationships: If you have a current checking or savings account with a bank or credit union, ask if they offer preferential rates for existing customers.

  • Lower your debt-to-income ratio: Your debt-to-income (DTI) ratio is the percentage of your income that goes towards paying off debt each month. The lower your debt-to-income ratio, the better interest rates you’ll be offered on new loans.

  • Compare offers: Shop around and obtain quotes from multiple lenders. Compare their interest rates, fees, and repayment terms. This will allow you to select the most competitive offers and potentially negotiate better terms that suit your needs.

Other ways to get a loan

If you can’t find a bank or private lender you like, here are a few more ways to obtain a personal loan:

  • Peer-to-peer lending: P2P platforms are online loan platforms that allow you to borrow money from multiple investors. The investors each lend you a small sum that adds up to the amount of your loan.

  • Credit unions: Credit unions are member-owned financial cooperatives that offer the same services as banks, but tend to have lower interest rates and more favorable terms.

  • Home equity loans: If you own a home and have built up equity in the property, you can apply for a home equity loan or home equity line of credit (HELOC). This type of loan allows you to use the equity in your property as collateral. Similar to personal loans, home equity loans provide you with a lump sum of cash that can be used for a variety of purposes. HELOCs, however, provide a revolving line of credit that you can use up and pay back as needed.

  • Online lending marketplaces: Online lending marketplaces like Navient Marketplace allow you to compare a variety of loan products all in one place. That makes it easy to choose the most suitable financing options for your needs.

Compare lenders with Navient Marketplace

An online lending marketplace can help you find the best rates on everything from small business loans and auto loans to credit cards and home refinances. If you’re looking for a personal loan, a tool like Navient Marketplace can help you navigate the lending landscape quickly and efficiently. Navient currently collaborates with Fiona, a leading personal loan search tool, to help borrowers get swift access to funding. Explore your options and find personalized loan rates by visiting our marketplace today.

Disclaimer: This blog post provides personal finance educational information, and it is not intended to provide legal, financial, or tax advice.

Navient customers are invited to consider personal loan offers through our partner Fiona. Navient has not shared your information with Fiona and is not involved in the personal loan application process in any manner. All information is submitted directly to Fiona and any personal loan offers are made directly by participants in Fiona’s lending platform, powered by Even Financial. Even Financial, Inc. is the industry-leading embedded financial marketplace and independent subsidiary of MoneyLion Inc. (“MoneyLion”) (NYSE:ML). Checking your rate will not affect your credit score. Eligibility is not guaranteed and requires that a sufficient number of investors commit funds to your account and that you meet credit and other conditions. Loan proceeds may not be used for postsecondary educational expenses, including refinancing federal or private student loans.

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