Whether borrowers can directly benefit from bank loans is an important criterion for assessing the economic effect of bank competition. Based on the increasingly fierce competition in China's lending market, we establish a bargain model to investigate the internal mechanism through which bank loan competition benefits borrowers. We then construct a two-tier stochastic frontier model to measure borrower payoff in loans and apply the Lerner index to investigate bank loan competition. We employ the data of 82 Chinese commercial banks between 2014 and 2021 to study how bank loan competition impacts borrower welfare. The results show, first, that the higher the degree of lending market competition, the greater the loss banks suffer from lengthy loan agreement negotiation processes, and the better off borrowers are. Second, a bank's dominant position in loan negotiation leads to net welfare losses and higher financing costs for borrowers. Third, loan competition results in better financial service to the real economy by offering net welfare gains to borrowers. This study not only enriches the literature on the micro-economic effects of bank competition, but also provides policy implications to both deepen financial marketization reform and accelerate construction of efficient institutional mechanisms to infuse finance into the real economy.