What Are The Advantages Of Non Bank Loans

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Advantages and Disadvantages of a Bank Loan

by Rebecca Lake & Reviewed by Alicia Bodine, Certified Ramsey Solutions Master Financial Coach – Updated April 05, 2020

Advantages and Disadvantages of a Bank Loan

If you’re running short on cash or you need to borrow money for a major purchase, taking out a bank loan may be the answer. Bank loans generally offer flexible repayment terms and they’re less expensive than payday or cash advance loans. On the other hand, borrowing money from a bank does have some drawbacks. Before you apply for a bank loan, it’s helpful to consider all the potential advantages and disadvantages.

Make Expensive Purchases

One of the biggest advantages of bank loans is that they make it possible to purchase big-ticket items. Unless you have a sizable nest egg already tucked away, chances are you’ll need a bank loan if you and your spouse want to buy your first home, make renovations to your existing home or upgrade your cars. Bank loans can also come in handy if you have a lot of high-interest debt you want to consolidate or if you need to pay for medical expenses that your insurance doesn’t cover.

Borrow at Better Rates

A second benefit of borrowing from a bank is the money you’ll save on interest. You could take a cash advance from your credit card, but you’ll likely have to pay a fee for borrowing the money. On top of the fees, credit card companies typically charge much higher interest rates on cash advances than purchases. Payday loans are another option if you need cash fast, but the Federal Trade Commission warns that these types of loans can carry interest rates nearing 400 percent. Bank loans, on the other hand, typically feature rates of 10 percent or less, depending on the type of loan you get.

Incur Long-Term Costs

If you need money for a big purchase, borrowing from the bank typically means you’ll have more time to repay what you owe. Home loans, for example, usually have repayment lengths ranging from 15 to 30 years. Car loans last for a shorter period of time, but you still typically have multiple years to pay off your vehicle. The downside of taking longer to pay off a bank loan is that you’ll end up paying a significant amount in interest.

Stricter Eligibility Requirements

Applying for a bank loan doesn’t guarantee you’ll get approved. Compared to payday lenders or title lenders, banks have much higher standards when it comes to qualifying for a loan. Your credit score is one of the biggest factors banks use to determine whether to lend you money. The lower your score, the harder it may be to get approved. The bank will also look at you and your spouse’s income, how much debt you owe, your total assets and the value of any property you’re planning to use as collateral.

Best Bank Loans

Which bank is best for personal loans?

There might be many reasons to take out a personal loan: You have a financial emergency, you want to cover a major expense, or you just want to build a good credit history. But not all personal loans—or personal loan lenders—are the same. The best will offer a low annual percentage rate, long repayment terms, and little to no fees. And of course, your personal needs and financial profile will impact the type of lender you’ll find ideal, too.

Investopedia is committed to providing our readers with unbiased product recommendations. We may receive compensation when you click on links to products but this doesn’t affect how we rate, review, and rank them.

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If you’re in the market for a personal loan, you better shop around. To jump-start your search, we’ve done some extensive research on the options out there.

Wells Fargo: Best Big Bank

Wells Fargo is one of the nation’s biggest banks. If you don’t want to visit one of their 5,400 branches across the U.S., you can access info on their easy-to-navigate website. Wells Fargo offers competitive rates, a big range of loans, and less stringent credit requirements than others.

Long repayment terms: up to 84 months

Minimal fees: No origination fee or prepayment penalties

Quick funding: Money available on the next business day

Discounts: Interest-rate breaks for auto payments, additional WF accounts

No prequalification: You have to actually apply for a loan, which triggers a score-dinging hard credit check

Application process: Online/phone applications for current bank clients only; newcomers must apply in person at a branch

Other Important Information

  • Loan ranges: $3,000 to $100,000
  • APR range: 5.24% to 24.49%
  • Credit requirements: Minimum 600 score (though of course, the higher the better)

LightStream: Best for Home Improvement Loans

LightStream is the online lending division of SunTrust Bank, now known as Truist. LightStream prides itself on offering loans for nearly every need or occasion, from a new car to a wedding; however, one of their specialties is financing for home improvement projects. Some people prefer using personal loans for remodels or major repairs because they don’t require putting up the residence as collateral, as home equity loans or lines of credit do.

Large loan ranges: As low as $5,000 or as much as $100,000

No fees: None. Really.

Long repayment terms: as high as 12 years

Stringent credit requirements: While LightStream doesn’t specify the credit score you need, they suggest having good to excellent credit to qualify

No prequalification: You have to actually apply for a loan, which triggers a score-dinging hard credit check

Other Important Information

  • Loan ranges: $5,000 to $100,000
  • APR range: 4.99% to 15.29% with autopay
  • Credit requirements: Good or excellent credit recommended

Marcus by Goldman Sachs: Best for Debt Consolidation Loans

If you have a mountain of outstanding credit card balances or other high interest liabilities, you might consider using a personal loan to consolidate them into one big debt for better terms. Marcus by Goldman Sachs, the online consumer banking arm of the investment management firm, specializes in such debt consolidation loans to those with decent credit.

Fees-free: No charges for late payment, prepayment, or loan origination

Flexible repayments: Borrowers can choose and change repayment dates, and even skip a payment

Discounts: .25% reduction in interest with auto-pay

Stringent requirements: Good to excellent credit score required

No cosigners allowed: No helping hand if your own credit isn’t solid enough to qualify

Other Important Information

  • Loan ranges: $3,500 to $40,000
  • APR ranges: 6.99% to 28.99%
  • Credit requirements: At least 660 score

TD Bank: Best for Cosigners

Those with sketchy credit histories or low credit scores can still often qualify for a loan if the lender allows cosigning. A cosigner acts as an additional repayment source—responsible for the loan should the primary borrower default or fall behind—and their presence not only helps you qualify for the loan but can also improve its terms and size. TD Bank allows for cosigning, and offers competitive terms and features, too.

Low APR: Maximum APR is 18.99%, far lower than many lenders’ upper limit

Fast process: Funds in 48 hours (with Express L\loan)

No hidden costs: No origination or application fees

Limited availability: TD Bank operates in only a few states

Application process: While you can apply online, by phone, or in person, you might have to visit a branch to complete the process

Other Important Information

  • Loan range: $2,000 to $50,000
  • APR range: 6.99% to 18.99%
  • Credit requirements: At least 660 score

Do All Banks Offer Personal Loans?

No, not all banks offer personal loans. Bank of America, one of the biggest financial institutions in the country, doesn’t carry them, for example. Most personal loans are unsecured, meaning they are not backed up by an asset that the lender can take if you default, and some banks don’t want the risk. Others just don’t want to deal with the expense of lending and servicing relatively small, four- and five-figure amounts.

What Do I Need to Qualify for a Personal Bank Loan?

If you’re looking to get a bank personal loan, you need to get your paperwork in order first. Before applying, check your credit score and pull your credit report through AnnualCreditReport.com. This will give you an idea of whether or not you’ll qualify for a bank personal loan, as well as how low your interest payments will be.

Most banks require good to excellent credit from personal loan applicants. So you might need a higher credit score than you would for, say, a secured loan (one that does require collateral, like an auto loan or mortgage) or even a credit card. Still, if you have a solid repayment history, avoid maxing out your credit cards, and can prove your creditworthiness, there’s a strong chance you’ll qualify for a bank personal loan.

Do I Need to Be an Existing Bank Client to Get a Loan?

If you’re interested in a personal loan from a bank you don’t have a relationship with, make sure that being a client isn’t a requirement before applying. Not all banks request personal loan borrowers be account holders, but some do—or they offer better terms to current clients. Also, you might need to open a checking or savings account there to take advantage of auto-pay discounts on the loan (the payments have to come from an in-house account).

What Are Alternatives to Bank Loans?

While many banks offer personal loans, there are some limitations. As noted above, many require you to have an account with the bank before taking advantage of a personal loan. Others might take longer to get you your loan. You might want to explore the below alternatives to banks for personal loans.

Credit Unions

If you have less-than-stellar credit, you may want to reach out to credit unions near you for personal loans. While many require an account with the credit union to be open first, many are competitive with APRs and low amounts to borrow. This is helpful if you don’t need to borrow too much to cover an emergency.

Online Lenders

Many online lenders, or non-brick-and-mortar banks, give you quick and easy access to personal loans. You can see if you prequalify before applying, which doesn’t hurt your credit. If you do decide to apply, you can do so within a few minutes online, rather than visiting a branch in-person. After approval, you can usually get funds fairly quickly—sometimes within a day. The best online lenders offer little to no fees, flexible repayment terms, and competitive APRs.

The best banks for personal loans vary in your needs, but many have competitive offers for a variety of different potential borrowers. Before you choose to take out a personal loan with a bank, make sure you review all your options, including alternatives, first. Depending on your needs and how quickly you need money, you may find some banks or lenders are more friendly than others. If it takes you days or weeks to apply for a loan and get your money, that won’t help in a time-sensitive situation.

Methodology

Investopedia is dedicated to providing consumers with unbiased, comprehensive reviews of personal loan lenders for all borrowing needs. We collected over twenty five data points across more than fifty lenders including interest rates, fees, loan amounts and repayment terms to ensure that our content helps users make the right borrowing decision for their needs.

Personal Loan Without Collateral: Know Its Advantages And Disadvantages

Personal Loan is a type of debt that serves as a financial assistance for a wide variety of purposes, such as payment of credit card balances, acquiring a new vehicle, funding education, starting an investment, and medical expenses, travel, among others.

Just like other banking products, a Personal Loan has two types—Personal Loan with collateral and Personal Loan without collateral.

Types of Personal Loan

A non-collateral personal loan is a type of a Personal Loan that does not require its borrowers to have a collateral or payment security before applying for such loan.

Opting for this type of loan does not involve risking your personal asset, business venture, or other investments, making it a wise choice for funding any of your financial problems quickly.

Personal Loan in the Philippines without collateral is being offered by different lending companies across the country. Each lender offers the best cash loan rates that suits to every type of budget.

Compared to a secured loan, cash loans with no collateral has its own pros and cons. Before applying for a loan, make sure you know the benefits and downsides of choosing a cash loan in the Philippines without collateral.

Here are some of its advantages and disadvantages.

What are the advantages of a non-collateral loan?

Less risky

Since this type of personal loan does not require any collateral or payment security, opting for an unsecured Personal Loan is less risky. In case you won’t be able to repay your monthly amortization, you don’t have to worry about losing your personal assets or investments.

Fast money

A cash loan that requires a collateral may tend to have a longer application process since the lender needs to review various documents and requirements. With an unsecured personal loan, the application process is often faster, which usually takes for about five to seven days upon receiving of the requirements. Hence, you can get your loaned money faster.

Easy requirements

Applying for a cash loan without collateral requires you to secure a valid billing address, proof of income (e.g. payslip or COE), and proof of identity (e.g. government-issued ID, company ID, or TIN).

What are the disadvantages of a cash loan without collateral?

Higher interest rates

Since an unsecured cash loan does not provide any security for lenders, they charge a higher interest rate. This means borrowers will have to pay a higher interest rate for their loaned amount compared to a secured cash loan.

Larger loan payments

A non-collateral cash loan requires a larger loan monthly payment. Furthermore, the repayment period for unsecured personal loan is shorter than a secured personal loan.

Just like managing your money, borrowing money is a huge responsibility. Make sure that you understand all the conditions given by your chosen lending company. Ensure that you afford to repay the loan to avoid any financial trouble.

After all, a Personal Loan should act as your financial assistance to any quick fix that you might need—and not otherwise.

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