Banks are Inefficient. Period.
When it comes to lending money, banks can be rather inefficient. In spite of the rise of technology meant to help streamline such processes, many banks remain mired in the past, with outdated systems for examining, and approving loan applicants, translating into long approval times. Another issue with bank efficiency is the difficulty in getting a loan from a traditional bank in the current climate – even for sound, creditworthy borrowers.
If you go to borrow at a traditional bank, you will typically get the entire loan amount from one lender. But it isn’t the loan officer that makes a decision: there are teams of people who comb through your application, and you may be asked for documentation again and again. Additionally, since many traditional bank loans are done using paper, the potential for lost documents and human error increases. In the current climate, with lenders licking their wounds from recent events, there are cases when the inefficiency stems from standards that are too tight and not designed for the best of borrowers. Add closing costs, higher interest rates on personal loans and other fees, and banks can be inefficient in terms of cost to you as well. What would they not be expensive? After all, they have so much infrastructure to maintain: buildings, branches, ATMs, personnel, paperwork, lawyers, large advertising bills… the list is endless, and you are the one shouldering some of that cost through the interest you pay.
A myriad of web-based innovative financial products are now available to you to help you manage, track, save, invest, and borrow fully online without the traditional financial institution slowing things down. For example, peer-to-peer lending truly streamlines the process of borrowing, with the ability to do complete applications online, and with proprietary formulas that can help assess your risk profile, it becomes faster and easier to get funding. But that’s not all, if you have been responsible with your finances and have a clean credit history, peer-to-peer lending offers better rates than traditional lending institutions. And let’s not even compare to credit card rates and gimmicky introductory rate offers. Another refreshing feature that peer lending brings to you is the direct lending done by “investors” who are willing to help fund your loan, so you do not have to rely on one source to get the financing you need, but can instead rely on the power of the crowds.
So stop and think before you feed your hard-earned dollars into the inefficient behemoths that banks are. Nowadays, you have options.
The views and opinions expressed in this post are solely from the author and do not necessarily reflect the views or policies of Lending Club, its management, employees or associated entities.
Thursday, September 23rd, 2010 at 12:39 pm