Pros and Cons of Getting a Personal Loan from a Bank

There are both advantages and disadvantages associated with getting a loan from a bank that you should know about. If you are currently looking for a loan, this is an option that you should at least take a look at before making a decision. You need to know what all of your borrowing options are so you can select one that will match your needs perfectly.

PRO: Reliability

Banks in the UK are held to high standards and are heavily regulated, so you can trust them completely. You won’t have to worry about whether or not the bank you are borrowing from is reputable. This can save you a little bit of time doing research.

PRO: Good deals for some people

If you have a high credit score, you will most likely be able to get a loan with a fairly low interest rate, which can make it much easier to pay off.

PRO: Flexibility

A lot of banks are willing to give borrowers what are called “repayment holidays”, which is when you only pay interest on your loan for a certain amount of time. This can be very helpful if you are struggling to make your payments for whatever reason.

CON: Difficulty Getting Approved

Many people who try to get a personal loan through a bank end up getting rejected because of their low credit scores. Most banks are very strict about who they will give a loan to based on their credit history. If you don’t have very good credit, you will probably have a hard time getting approved by a bank. This is why so many people are getting loans with private lenders.

CON: Usage Restrictions

Some banks will only allow you to borrow money for certain purposes, whereas private lenders will let you use the money you receive however you want. There are actually quite a few different things that you won’t be able to borrow money from if you go through a bank. This can make it quite limiting for a lot of people.

CON: Takes a While to Get Your Money

It can take up to three weeks for you to receive your funds from a bank even after you have already been approved. Banks are notorious for taking a very long time to disperse funds to approved people. If you need money right away for some reason, a bank is probably the last place you want to apply for a loan with. The amount of time it will take for you to get your money will depend on a number of factors, but it’s usually not quick. Borrowing from a private lender can provide you with funds within a matter of hours.

CON: Early Repayment Fees

You may have to pay an additional fee if you pay your loan back early. This is not always the case, but it can be. The last thing you want is to be charged extra for paying back your loan before the due date. The average private lender won’t charge you for this, and it can help you save a lot of money. The earlier you pay back your loan, the less you are going to pay overall.

The Application Process

Applying for a loan through a bank can be a somewhat cumbersome process. You might have to fill out physical paperwork, depending on the bank you go through. A lot of banks will allow you to apply online, but it can take a while. Private lenders are mostly based online and make the application process very simple and easy. If you are going to apply for a loan through a bank, you should be prepared to set aside at least 30 minutes of your time. Some bank loans are very extensive and incredibly time consuming.

Interest Rates

Banks can charge very high interest rates, depending on what your credit is like. It can also be a variable rate, which means that it can change over time according to market conditions. This could result in paying more than you have to for your loan. A fixed interest rate is almost always a better option, as it stays the same for the duration of the loan you take out.

Should I get a Loan from a Bank?

Pretty much the only time that it is a good idea to get a personal loan from a bank is if you have really good credit. If your credit is substandard, you should think about applying with a private lender. Online private lenders tend to be far more flexible and reasonable with their terms. There is also a much better chance of getting approved with a private lender if you have a low credit score. Keep all of these things in mind before filling out any loan applications.

A First Time Borrower’s Guide to Personal Loans

If you have never taken out a personal loan before, it is important that you know what to expect. This can be pretty overwhelming to someone who doesn’t have any borrowing experience at all. A person loan can be extremely helpful or harmful, depending on how responsible you are. When you take the time to get this information, you will be able to get the funds you need without any negative consequences.

How it Works

A personal loan is a lump sum that you are given by a bank, credit union, or private lender. You will be required to pay back the principal amount of the loan plus interest. You aren’t required to put any money down, as it is all paid at the end. There will be a specific date that you will have to pay the loan back by, which will be stated in the contract you have with the lender. Your interest rate could anywhere from 3 percent to north of 10 percent, depending on what your credit is like. Not everyone gets approved for these loans, and there are many different factors that a lender will use to determine your worthiness as a borrower.

Qualifying for a Personal Loan

There are numerous things that the average lender will look at to determine whether or not you should be approved for a personal loan, including:

  • Your credit: The overall state of your credit will be just one thing that lenders will take a close look at before approving your application. Keep in mind that while a lack of credit isn’t especially good, it’s not necessarily bad either.
  • Ability to repay the loan: The amount of money that you make with each of your paycheques is something else that matters a lot when applying for a loan. The lender must determine that you are able to pay back the loan on time. You will have to submit proof of your income when applying for a loan.
  • Job history: Even your employment history will matter when you want to get a loan. Those who have kept the same job for a while have increased odds of approval with most lenders.

Choosing a Lender

As a first time borrower, it can be easy to get carried away and select the first lender that you come across. You will instead want to take your time and research the various options that are available. A good lender has an impeccable reputation, so keep that in mind when doing your research. Whether you choose a bank or a private lender, you need to do your homework before making a decision. Choosing the wrong lender for your loan could mean spending far more than you really needed to.

Finding a Reasonable Rate

You should never underestimate the power that your loan’s interest rate has when it comes to your ability to repay your debt. A low rate means that you are much more likely to pay back the money you owe by the specified date in the contract you signed. The best way to get a good rate on your loan is by getting quotes from different lenders. This will ensure that you don’t pay a ridiculous amount of money on top of the principal.

Read the Contract Before Signing

The “fine print” in the contract that you are handed by your lender is very important, so you need to look over it carefully. The same goes even if you are getting a loan online. Read every single letter of the contract, digital or otherwise. This contract will tell you how much the loan is for, when it needs to be paid back, and any fees you are required to pay. It will also specify the interest rate on your loan. If you find that certain terms are not to your liking, you can try to negotiate with the lender. A lot of lenders are willing to negotiate with approved borrowers to a certain point.

Paying Back Your Loan

It is absolutely essential that you pay back your loan as quickly as possible. You don’t want to have your credit trashed because you failed to fulfill your obligation to the lender. If you think you might be late paying back the money you borrowed, contact your lender immediately. There is no good that can come from keeping them in the dark.

Who Should get a Personal Loan?

Anyone who needs money for home repairs, car repairs, a vacation, wedding, or something else entirely should think about applying for a personal loan. Just be careful when borrowing money, regardless of who you get it from. Be patient and go slow through this entire process, especially if it is your first time. You don’t want to make any mistakes that you will regret later.