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What is the difference between a bank and a private lender?

What is the difference between a bank and a private lender? 1024 440 Guardian Financing

Borrowing and lending: these terms refer to a financial transaction and are considered synonymous. However, their strict definitions differ slightly. This post offers a clarification of each word and, at the same time, explains the difference between a bank and a private mortgage lender.

The question is, can you get a loan without relying on a bank? This idea sounds a little strange, yet it is more than realistic. If not, how could car entrepreneurs, often shunned by conventional banks, finance themselves? Unbanked credit is not widespread, but it represents a real financing opportunity for independents. That’s why in this article we present alternatives to bank loans to help you in your borrowing process.

Personal loan: what you need to know

A personal loan, also called a consumer loan, is a transaction that allows you to borrow a certain amount of money against repayment over a certain period of time. The reimbursement covers the entire amount and the various related costs and interest.

When negotiating a personal loan, three elements are taken into account:

  • amount borrowed (also called capital)
  • borrowing costs (interest rate)
  • a debt instrument (also called a promissory note)

Note that a personal loan is typically used for specific projects: home renovations, the purchase of a car, or to pay off some of your debts.

Why use a private lender?

A private personal loan provider can be a valuable asset depending on your situation.

Private loan providers primarily target those with poor credit ratings, or those whose banks and approved institutions refuse them funding. Therefore, a private lender offers a second chance when all other sources of finance elude you.

However, it is not only people with poor credit who turn to private loan providers. Other significant benefits include the simplicity and speed of loan processing.

Without bureaucratic responsibilities, private providers of personal loans can give approval and access resources much faster than a bank can. A private personal lending organization can enter into a contract with you in a matter of days, giving you more effective access to your funds.

Find a private lender among your loved ones

If you want to obtain a loan between individuals calmly and without fear of fraud, it is advisable to seek a private lender among your relatives.

It may be a family member, but could also be a friend or neighbor.

However, although a loan between individuals is reassuring, it is recommended to make a private loan as soon as the amount exceeds 100 euros.

This ensures that a written record of the loan is kept in case the borrower defaults on his debt.

Benefits of using a private lender

The main advantage of using a private lender is the ease of receiving money. A loan between individuals is much more flexible than a conventional loan.

It is particularly attractive to look for a private lender in case banks refuse a loan due to great debt or past banking incidents.

Another advantage of asking a private lender for money is the speed with which the funds are made available, unlike ordinary banks.

When applying for a bank loan, several weeks elapse between the application and the availability of funds. On the other hand, when the loan comes from a private lender, the latter can transfer money on the same day as the loan is requested.

Moreover, hiring a private lender saves money in terms of borrowing costs relative to a bank loan. In this latter case, the borrower must pay an application fee and a non-negotiable interest rate. However, in the case of a bank-less loan, the cost of setting up the loan is eliminated and the interest rate is contractual.

What are the differences between a private personal lender and a banking institution?

Even if their purpose is the same, private lenders and traditional banking institutions will differ on some points. Here is a summary of the differences between the two:

Personal loans from private lenders

  • very fast approval time
  • funds disbursed in a short period of time
  • less restrictive
  • accept riskier financing
  • considered less reliable
  • higher interest rates
  • shorter repayment period

Banking institutions

  • high reliability
  • lower interest rates
  • possibility of long-term repayment
  • the sum is often greater
  • lengthy and tedious procedures
  • potential long delays in disbursing funds
  • further credit investigation
  • no risk of compromising funding


More and more individuals are looking for private lenders because of the many advantages this lending model offers, and forecasts of this credit model indicate that the number of financial transactions between individuals is expected to continue to increase in the coming years.

However, it remains difficult to find a serious and honest private lender and it is necessary to take all necessary precautions before committing. For example, if the lender requests a sum of money to complete the loan, the request should not be processed.

Finally, the best way to protect yourself against the risk of fraud is to contact a notary, despite the costs incurred.

You now know how to borrow money without going through a bank! Contact us today to learn more about financing options.