Even the most financially educated and conscious among us may need to borrow money from time to time. While the idea might not be appealing, some have realized just how helpful bank personal loans are; when used responsibly, personal loans can be the ladder that puts certain goals within reach, like financing a big purchase, a wedding, or a home renovation project.
Bank personal loans are installment personal loans that imply borrowing a lump amount, which you then pay back through smaller monthly installments and loan payments. They’re often regarded as one of the most affordable and financially reasonable lending options, especially for borrowers looking to finance a large purchase since they have lower interest rates than credit cards and much more favorable loan terms than payday loans.
In this guide, we’ll explain everything you should know about bank personal loans, including what they are, how they’re used, what to know before submitting a loan application, and other viable alternatives to personal loans.
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How to Use a Bank Personal Loan
Since bank personal loans imply borrowing a lump amount and paying the loan back in fixed monthly payments, they’re usually used for covering various types of expenses, financial needs, or emergencies.
Besides the aforementioned uses, bank personal loans are also used to cover employment termination, vehicle repair, debt consolidation, medical bills, moving expenses, unexpected expenses, and refinance of other loans, among other things.
One of the most common uses is home improvement, which often takes considerable financial means to plan out and execute, especially due to the time-sensitive nature of the project—not to mention safety concerns if the improvement is related to structural damage.
Bank personal loans are also commonly used to finance an ongoing expense, such as school tuition or your child’s living expenses when they’re attending college because renting accommodations isn’t affordable on top of tuition payments. Starting a business could also be one of the reasons to take out a bank personal loan, as it provides you with the seed money that pays for the office space, supplies, furniture, and technology.
People also take out personal loans when consolidating debt, such as simultaneous payments to medical bills and student loans. This allows borrowers to pay their outstanding debts that vary in amounts, interests, and payment dates and consolidate them into a single loan, with equal monthly installments at a single interest rate.
It’s also a great way to pay off credit card debt, as bank personal loans usually come with lower interest rates. In the end, most traditional lenders, such as banks or credit unions, aren’t interested in reasons why you’re taking a loan as long as you make timely payments and honor the repayment terms.
What to Know Before Applying for a Bank Personal Loan
Bank personal loans are unsecured loans, which means that they don’t require any collateral in the form of personal property, real estate, or valuables. This means that the lender can’t repossess your property if you default on the loan. However, lenders still have to establish your creditworthiness and eligibility for the loan, and without collateral, the biggest eligibility factor is your credit score.
Know Your Credit Score
Traditional lenders, such as banks and credit unions, usually review the borrower’s credit history or FICO score to determine whether they qualify for the personal loan and associated costs. For example, if the borrower’s FICO score is 670 or higher, banks will offer lower interest rates and certain benefits to their customers/borrowers.
Borrowers with suboptimal credit scores don’t usually pass the credit check, and banks and credit unions typically deny the loan or demand high interest rates due to a higher perceived risk. This is why it’s important to know your credit score before you contact the lender inquiring about the loan. If you’re not familiar with the FICO score, here’s a breakdown:
- Any score below 580: Poor credit
- 580-669: Fair credit score
- 670-739: Good credit score
- 740-799: Great credit score
- 800+: Excellent credit score
As previously stated, banks typically offer more favorable interest rates and repayment terms to borrowers whose FICO score exceeds 670, which is considered good credit. Borrowers whose FICO score falls short of 580 typically don’t pass credit checks and are either denied on their loan application or the lender charges them higher interest.
If you’re looking for a personal loan but your credit score isn’t optimal, you should look for personal loans for bad credit.
Compare Different Lenders
It’s always a good idea to compare different lenders. Fortunately, the digital age has made that easy, as it allows you to compare different lenders online without having to call different lenders or walk from one branch office to the other.
Not all lenders are the same, and they don’t offer the same terms and conditions to their customers, which is important because you may have different repayment terms and penalties to consider.
Some lenders offer interest rates that might be too high for you, while others might not have stellar reviews, which is why you should always compare different lenders and read online reviews from people who have previously dealt with that particular bank or credit union.
There are online services that allow you to compare different lenders when it comes to their interest rates, loan amounts, and penalties. Many also feature a calculator that allows you to make preliminary calculations of your interest and installments.
Read the Fine Print
It’s really important to read your loan agreement thoroughly, as these documents often contain fine print that contains key information. Some of that information might include prepayment penalties, mentions of origination fees, requests for automatic payments, minimum loan amounts, credit inquiries, annual percentage rates, or high-interest late payment penalties.
Obtaining a bank personal loan is a major financial transaction that could have broad implications if you fail to understand what your obligations are. It’s important to read the fine print, if any, to get a better grasp on the contractual obligation you’re entering.
It’s important to note that reputable lenders will not hesitate to disclose any information, usually going out of their way to make you feel comfortable and explain everything to you thoroughly. Please understand that there are no stupid questions, so make sure to ask as many questions as you need. If the lender hesitates or fails to answer any of those questions, it’s best to move on to a different lender.
How to Apply for a Bank Personal Loan
Applying for an unsecured personal loan is pretty straightforward, but it does require you to learn your credit score and gather and submit the documents required by the lender. Start by learning about and correcting any inconsistencies in your credit report. This could marginally positively impact your credit score, thus earning you more competitive rates and terms.
Afterward, submit an official loan application, which requires that you also submit your state-issued ID, social security number, proof of residency, proof of income, personal details, and any loan- or lender-specific documents the lender might require.
Once the lender approves your loan, they’ll deposit the loan amount into your checking account, usually within the 24 hours after the loan has been approved or during the next business day; some lenders even offer same-day personal loan deposits.
After the funds have been loaded into your bank account, all you have to do now is make timely installment payments during the life of the loan. Alternatively, you can streamline the application process by visiting Loan For Any Purpose and simply filling out the application form available on our website.
Once the form containing the necessary information is submitted, we’ll share your application with potential lenders within our vast network. This is a much more time-saving approach, as it exposes you to a vast number of lenders who might decide to offer you a bank personal loan; it’s not outside the realm of possibilities for you to receive multiple offers as well.
Alternatives to Bank Personal Loans
We already mentioned that bank personal loans are unsecured loans that rely on your credit score to determine your creditworthiness and eligibility for a fast personal loan. However, there are other loan options, such as:
- Lines of credit: Lines of credit are flexible loans that allow you to withdraw and spend money up to a predetermined limit, pay it back, and then borrow it again in a potentially never-ending cycle. However, these also have limited loan amounts and variable interest rates, which apply only to the amount borrowed, and they can also be backed by collateral.
- Mortgages: Mortgages are typically used to finance the purchase of a home or other real estate, in which the financed property acts as collateral.
- Home equity lines of credit: Also known as HELOCs or second mortgages, these loans are secured by the borrower’s equity in their home.
- Home equity loans: Similar to HELOCs, the borrower receives a lump sum of cash based on the equity they have in their home.
- Car title loans: Car title loans are secured by your vehicle; the lender holds the title to the vehicle to protect its interest in the collateral, while the borrowers retain the right to drive their car for the duration of the loan, as long as they make regular monthly payments.
Summary
In summary, bank personal loans are financial options for borrowing money to cover major expenses. As such, they should be treated seriously and approached with responsibility since defaulting on the loan could harm your financial health. If you’re looking to secure a bank personal loan, don’t hesitate to contact us; we’ll help you find a suitable lender.