While banks often advertise rates that are cheaper than alternative sources of funding, it is critical to understand that there is far more to loan outcomes than just an interest rate.
Borrowers often prefer the perceived security, stability, and value of the banks, and there is little doubt a strong relationship with a major bank can prove invaluable. However, there is also a range of important reasons why banks may not be the best source or even a relevant source of funding.
When considering a loan, simply seeking a cheaper rate can be a flawed approach. There is little logic in attempting to compare loan rates when a range of varying factors such as processing times, loan amounts and tenures, ancillary fees, and most importantly eligibility, is critical to a customer’s needs and goals.
For many borrowers and businesses, the rigid criteria of institutional lenders are not always suitable or fit for purpose. As a result, it makes little sense to consider interest rates on a product for which an applicant has been deemed ineligible.
While private funding options are particularly appropriate to consider in these circumstances, when taking into account all relevant loan factors, it certainly is not only ineligible applicants for which a bank loan may not be ideal.
Finding the right solution
In many cases, major banks can no doubt provide superior value to customers seeking a straightforward finance solution; where the borrower can be flexible on timing, requires particular funding amounts, and is of course, eligible.
However, the prescriptive rules and regulations that major lenders require of customers can often make their solutions invalid or more costly in the long term. Interest rate honeymoon periods where lenders entice customers at discounts can be misleading once standard rates are ultimately applied to loans. While upfront or obscure fees for additional services can quickly distort costs over the total life of the loan.
The flexibility for private lenders to tailor loan tenures is also of vital importance and potentially of great consequence. If borrowers are locked into a loan for a period beyond what they actually require, interest costs can accumulate well beyond what is necessary for the customer.
It is imperative that borrowers diligently consider the purpose of their particular loan, taking into account the necessary urgency and the potential financial benefits from executing a successful purchase or business deal. Perceived interest rate premiums can quickly be negated or far exceeded if the loan solution is ultimately more suitable.
Private lenders are ideally placed to provide customers with purpose-driven funds, given their ability to customise loan terms as required. Yet with such a wide choice of private lenders available, each with unique strengths, a competent broker is invaluable in helping borrowers find the correct financing option for their circumstances.
The UCapital team of experts can help customers navigate this complex range of terms that can dramatically impact the success of securing a lucrative market opportunity, whilst delivering the best possible financial outcome.
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