Bank loans are typically applied by businesses, but you’ll also find regular people applying for a bank loan for personal expenses like buying a car or for housing purposes. If you are planning to apply for a loan at a bank, you need to know the ins and outs of this type of loan.
Bank loans exist to meet many different needs and choosing which type of bank loan you’ll apply for can be a little overwhelming. Bank loan variations include fixed rate, variable rate, instalment, secured, unsecured, and convertible. Each type of loan has unique repayment terms, and understanding those terms can make choosing the right loan easier.
Getting a Bank Loan
Bank loans can be short-term or long-term, depending on what you’re going to use it for. The bank sets the loan term over which the loan cost is spread. Loan terms can be three, five or ten years, and some could reach up to three decades.
Other fees and charges may be applicable on top of the interest on the amount owed, depending on the loan the bank offers. Some banks have arrangement fees, which are commitment or administration charges to reserve the funds and to cover opening costs.
Interest varies depending on the risk of default. A good thing about bank loans is flexibility on rates and fees. Banks offer access to a wide range of terms, fees, application requirements, and interest rates. Moreover, most bank loans have lower interest rates as compared with other private and online lenders.
On the downside, bank loans are often hard to get because of strict requirements. Banks are careful to lend only to businesses and individuals that can clearly repay their loans. They also make sure that they are able to cover losses in the event of default.
Banks usually require the borrower to provide some form of security or collateral for the loan. For start-up businesses, the security often comes in the form of personal guarantees provided by the entrepreneur such as land or any valuable asset.
Banks loans usually have lengthy and thorough application process before you or your business is approved for a loan. Many paperwork is needed that’s why the application process takes a while. But, with a strong application, a solid business plan, and good referrals can make you look very appealing to the bank. You may get favourable terms for the repayment of the loan you are applying for.
Banks typically have a lower cost of credit in comparison with other lenders because of their depositors. Depositors serve as retail customers of the bank, and they keep a lot of money in their checking and savings accounts. The ease of access to those funds enables banks to lend out easily, thus they can offer lower rates than other lenders.
Bank Loan for Business
Bank loans are suitable for financing business investment in fixed assets like plant and machinery, land and buildings, and to obtain funds for business expansion. In fact, bank loans are the most common form of loan capital for a business.
Banks provide medium or long-term finance for business. In the past, banks don’t usually cater to small and start-up businesses. But, in the recent years, banks are starting to open up to small businesses because they’ve seen the strength and importance of this growing market. However, start-ups or businesses with a track record of poor profitability and cash flow could not qualify for a bank loan.
Bank Loans for Personal Expenditure
Searching for a personal loan can be quite a hassle. In the UK, there are over seventy types of lenders offering personal loans, from banks and building societies to online lenders and private lenders.
A bank is a traditional way of taking out a personal loan in the UK. Getting a personal loan from a bank is still a good idea if you like to go for familiar brands. With numerous types of loans and financing options available in the UK from banks of all sizes, you’ll need to know which option is best for you. Check out comparison sites of banks in the UK, so it’ll be easier for you to make a decision.
Bank loans for personal purposes include short-term and long-term loans, secured and unsecured loans, car loans, home loans, financing through credit card, and much more.
You can apply for a long-term loan for personal use to cover large expenses such as home renovations, car purchases, and housing or buy a property.
If you are a homeowner and would like to get a loan from a bank, you’ll be eligible for a secured loan. Other collateral that banks accept to secure a loan can be a vehicle or other valuables such as land, bonds, and jewellery.
With a secured loan, your promise to repay the money owed is “secured” by granting the bank interest on your property used as a security of the loan. If you default on the loan, however, the bank can regain the money you borrowed by seizing and selling the property used for collateral on the debt.
In contrast with secured loans, your promise to repay an unsecured loan is dependent upon your creditworthiness and reputation to repay the obligation and not on any collateral. This means that you should have a good credit rating in order for you to be approved for a bank loan.
The best deal is actually the one that suits your needs best. If you want to get a good deal, take your time to compare rates and terms of different banks, as they vary accordingly. Sometimes, it is also best to work with your current bank. Most banks provide benefits to those who already have a current account with them.
When you compare bank loans, look at all aspects of the loan. Consider not only the monthly repayment but also the total cost. Check the APR, the interest rate, and the loan term to ensure you won’t be paying more interest than you should.
Ultimately, it is important that you have a good credit score for you to qualify and get good deals when applying for a bank loan. Banks usually have the cheapest loans in the market, but they ask all their applicants to have a good credit score in return.