Should You Use Bank Loans for Personal Loans?
When looking for flexible options for financing when you’re in a pinch, a personal loan can be a good tool. But are bank loans the best option for personal loans?
While a bank can be a good place to look for a personal loan, the reality is that there are other options available now. Be sure to check what your bank offers, but don’t rule out some of the other competitors out there. Online banks and lenders provide a viable alternative to traditional banks.
Here’s what you need to know when considering bank loans for personal loans.
Pros and Cons of Bank Loans
Using a bank for your loan can provide you with personal attention and access. However, there are also drawbacks to using a traditional bank to get your personal loan.
Pros of bank Loans
You can discuss the loan and apply in person, providing you with a connection to the loan officer.
Applying at a bank where you already have an account might get you better terms and access.
Cons of bank loans
Credit requirements might be higher with bank loans.
You might pay higher rates and fees, since a traditional bank usually has overhead associated with brick and mortar.
You might not be able to apply for a loan or speak to someone outside regular business hours.
You may have to wait a few days for a decision—and a few more for your money.
If you don’t mind going in to a bank during regular business hours, and you prefer the face-to-face interaction that comes with physical banking, a traditional bank can make a lot of sense.
You might also join a local credit union to get the personal experience. Credit unions often offer lower rates, since their profitability model is different from a bank’s.
Pros and Cons of Using an Online Lender
Instead of getting traditional bank loans, it might make sense for you to turn to an online lender. You’re still subject to credit requirements when you use an online lender, but the criteria might not be as strict.
Here’s what you need to know about online lenders.
Pros of online lenders
You can apply for a loan at any time, since access is 24/7 on the internet.
Lower overhead can mean lower interest rates than with bank loans.
In some cases, credit requirements are less strict. If you have poor credit, you might be able to qualify for a loan that can keep you from turning to a payday lender.
Decisions are often made quickly, and you can usually get your money in a couple of days.
Cons of online lenders
Customer service might be limited. You might not be able to call, and instead have to make do with online chat or email.
Representatives might not always be as knowledgeable about finance as you would see in a traditional bank.
You need to pay attention to the terms. Some online lenders aren’t much better than payday lenders.
If you like the convenience and ease of using the internet to manage your finances, and you’re comfortable with it, an online lender can be a good way to get your money quickly.
Compare Your Options
Whether you choose a traditional bank or turn to an online lender for your personal loan needs, it’s important to compare your options. Be sure you’re comparing apples to apples as you consider the following items:
- Interest rate on the loan
- Term length, whether it’s less than a year or up to three years
- Total amount you’ll repay by the time all the fees and interest have been added in
- Penalties that might result if you’re late on a payment or default
In many cases, you can get some of this information by filling out a form with an online lender. The lender will do a soft credit pull and come back with loan options. You can then take these loan options to a traditional bank to see if they are willing to match the terms (or maybe even offer you a better deal.)
Double-check to ensure that the lender is performing a soft credit check, which doesn’t impact your credit score, when giving you a rate quote. When you make your final decision and fill out an official application, that’s when the lender will use a hard credit check to verify your credit information.
In the end, you need to choose the best option for your situation and your comfort level. In some cases, bank loans fulfill your needs. But it’s important to compare three or four options to ensure that you’re getting the best possible deal for your personal loan.