The demand for unsecured personal loans is increasing due to the growing needs of consumers, inflation, and other economic conditions. People use this loan to pay for medical expenses, build home offices, renovate homes, arrange weddings, and other major life events. The loan is also used for debt consolidation to reduce the interest rates of other debts. Besides the traditional banks, people can now access fintech personal loans.
Traditional Banks vs Fintech Companies
People depended on traditional banks for decades for their various financial needs. These banks provide different financial services like loans, credit cards, savings accounts, and others. They have both brick-and-mortar and online presence.
Financial technology (Fintech) companies, on the other hand, are changing the landscape of the financial system, making it smarter and faster. They are introducing digital platforms, apps, and AI tools. As a result, automation is replacing long wait times. You can open a bank account in minutes from your phone instead of standing in long queues at the bank. These companies can develop your customized investment portfolio automatically using algorithm. Here are the main differences between a traditional bank and a fintech company.
Convenience
Banks rely more on the physical existence, whereas Fintech companies prioritize digital platforms to provide streamlined financial services. Therefore, services provided by fintech companies are more convenient as the consumers can access the various financial options from anywhere.
Better Experience
The traditional banks offer personalized service, face-to-face interaction, and a variety of financial products. For complicated financial needs such as mortgages or investment management, the traditional banks will provide proper guidance.
Fees
The traditional banks charge a number of fees throughout the year, including account maintenance, overdrafts, and ATM withdrawal fees. All these add up to quite a large amount. Fintech companies, on the other hand, provide low-cost or even free services. As they use digital platforms, you won’t incur any unnecessary costs.
Technology and Innovation
Today, you will find that all the banks have replaced their manual operations with automation by adopting financial technology. Fintech companies are more advanced in this regard. They have innovative features like AI-powered tools for budgeting or loan approvals in real-time.
Trust and Security
Banks have built up trustworthiness over the years with their highly regulated and insured system. So, many people consider banks to be a safer option for long-term savings. Fintech companies now have strong cybersecurity to protect consumer data; however, the protection still may not meet the high standard of traditional banks. Many consumers are still reluctant to rely on online transactions; they prefer a physical entity like a bank.
Both traditional banks and fintech companies have pros and cons. You need to weigh them along with your needs to decide which one to choose.
Banks or Fintech Companies: Which One to Choose for Personal Loans?
You need to take into account several factors before deciding whether to choose a bank or a fintech company for your personal loan. The choice depends on your lifestyle and financial goals. A traditional bank is appropriate if you have to manage lots of assets and seek constant financial advice. If you are looking for a convenient and low-cost way of managing everyday expenses, then you should choose fintech companies.
If you require fast approval of a personal loan due to an emergency financial situation, then you should go for fintech personal loans. Your application will be processed within hours, as it requires minimal documentation that is processed digitally. The application forms are user-friendly, and you can submit the other necessary documents electronically. Traditional banks will take a couple of days to approve your loan application. The banks often need more documents and physical verification for loan approval. However, this fast processing of fintech personal loans comes with a cost; the interest rate can be higher and variable. Banks would offer a lower interest rate if you have a strong credit score.
Fintech personal loans are suitable for small to medium amounts, that is, up to $50,000. If you are seeking higher loan amounts, then you should try bank loans, which can offer you more than $1,00,000. As fintech personal loan approval doesn’t depend only on the credit history, the borrower can show alternative sources to demonstrate their creditworthiness. So, you can easily become eligible for a fintech personal loan. On the contrary, traditional bank loans have stricter eligibility and require a high credit score.
If you don’t feel safe dealing with a personal loan online, then you should choose a traditional bank. Though the cybersecurity of fintech companies is very strong now, many people still hesitate to do online transactions. In such a case, a bank would be a better option.
Fintech companies offer flexible and customized repayment terms. Thus, borrowers can choose repayment periods matching their financial capabilities. The repayment period can be from a few months to a number of years. The traditional bank personal loans have fixed repayment terms.
Conclusion
Ultimately, the choice of bank or fintech personal loan depends on your preference and financial conditions. In the future, there will probably be a blend of traditional banks and financial technology in financial services. So, the consumers can enjoy the best of both worlds.
