Well, to be perfectly honest, there is really not that much of a difference when you look at it on the whole.
A personal loan from a bank works in pretty much the same way as a personal loan from any other money lender. The one more noticeable perk here is that you might get a loan from a bank with which you already have an established relationship. Certain banks offer reduced fees or other such convenience perks for clients who use their services as “bundles” (in other words, keeping their money management within the domain of the same bank instead of branching out).
Moreover, when it comes time to verify your information and confirm whether or not you are eligible for a loan, your established bank can make the verification process a whole lot easier. They can verify your expenses and your monthly or annual income by looking at your savings account or your checking account. For more information about the process of applying for a personal loan with different banks and what to keep in mind for it, take a look at this useful article.
Learn what kinds of loans are available from a bank
When it comes to banking services and the kinds of loans they offer, there is a fairly wide palette of services out there. Indeed, nearly any kind of borrowing necessity can fit into a bank funding frame. That said, these varied services (and make no mistake, they vary quite wildly between different banks and lenders) can be roughly categorized into four main groups or types. These are the loans for consolidating debts, loans from a credit line, and personal loans which can be secured and unsecured. Here is a brief rundown of each.
The debt consolidation variety of loan is sort of a crowd control tool, except the crowd is made up of financial pinches instead of angry and disobedient individuals. It is aimed at those people wo have several debts on their backs, and for different amounts at different places. For example, you might have previously taken out a car loan, and you have some credit card debt, and there are still some tails of a student loan dragging along from your college days because of interest rates.
The idea is that you take all of these separate debts and bring them together – consolidate them -into one loan to pay back. It brings you the great convenience of having just one monthly payment on your mind, instead of scrambling to keep track of what you need to pay whereby which date in the calendar. This allows much easier tracking and managing of your finances, and often comes with the added perk of cutting down the interest rate, since you would be paying across all your debts at once instead of calculating their individual percentages.
A loan based on a line of credit is really useful as a temporally spaced out resource. It allows you to take out however much money you need, at any time you might need to. There are no set dates at which you could get cut off; instead, you have a credit limit to keep in mind.
The main benefit of this loan format is that the interest rates that you get charged are comparably smaller with regards to the money you spend, when compared to a standard term loan. They are charged according to the amount of money you took out at a given point, and only that amount, instead of the available total as is usually the case with other loan formats.
Finally, personal loans, like we said, can be secured or unsecured. Secured personal loans are usually taken out to make some kind of a big purchase, like a new car or a new home. That newly purchased property then becomes the collateral for the loan. If you fail to make a repayment in proper time, for whatever reason, that new purchase gets seized – you are effectively forced to pay in assets if you fail to pay in cash. Therefore, you are not allowed to spend the loan money or anything other than the purpose for which you originally took it out.
Unsecured personal loans, in contrast, are not bound by any collateral asset, and thus afford you greater flexibility in choosing how to use them. For this reason, there is a higher risk of people defaulting on their repayments, so the banks ask for higher interest rates, higher fees, and they also typically employ much stricter criteria for deciding if you are eligible for the business. You can use a service like Singapore’s Gobear to compare different personal loans and see what works best for your particular situation.
Recap of the pros and cons to keep in mind
While comparing different banks, compare also bank loans vs. other options. The good sides of a bank loan are better flexibility than offers from small, independent lenders, the option to keep your finances neatly in one place to be more manageable, and the speedier process that comes with a pre-established banking relationship.
The two biggest downsides are that the eligibility criteria might prove too strict for your credit history, and that interest rates might turn out higher than with a small, no-name lender. Weigh your options before you settle.