A bank loan is if you are to interpret it literally a loan you take with the bank. In such cases, there can be many types of loans, but the variant that you normally think of when you say bank loans is a regular private loan. A private loan is a loan that has no collateral and can be used for virtually anything.
A bank loan (private loan) usually has a loan amount between about USD 10,000 and 350,000 and the loan’s term (ie how long you have to repay the entire loan) is between 1 year at least and 15 years at most. There may be some exception to how much you can borrow or maturity, but these are the most common terms.
Bank loans without collateral and with collateral
As mentioned, a private loan is a loan without any collateral. The opposite of a unsecured loan is a secured loan and it is, for example, a mortgage loan or a car loan. When you take out such a loan, you can borrow money against leaving your home or car as collateral for the loan. Of course, you do not leave your home or car, but simply have an agreement with the bank stating that they have the right to sell your collateral to pay off the loan if you cannot manage the payments properly.
When you borrow unsecured you do not have to buy anything specific for the money such as a car but you are free to spend the money on what you want, for example a trip, renovation or a very expensive cap. The only requirements you have are that you pay your monthly payment with amortization and interest according to agreement.
Since a loan without collateral is a greater risk for the bank, this type of loan becomes a little more expensive than a loan with interest. For example, the mortgage is probably the cheapest loan you can take. However, a private loan is not that dangerously expensive either if you borrow from a sensible bank or lender with good interest rates.
Should I borrow from a bank or other lender?
As we wrote earlier, the bank loan got its name from borrowing money at the bank, which was almost the only alternative in the past. Today, as I said, not all lenders are available banks, but some only deal with lending and have no other banking services. But what is the difference between borrowing from a real bank and borrowing from another type of lender? What are the pros and cons?
Actually, there is nothing to say that a bank must be better than another lender. The big banks often have good interest rates on their loans and if you compare with the lenders who have “consumer loans” or slightly smaller private loans, the usual banks usually tend to be cheaper. If you want to find the cheapest loans, however, you should look around and compare different loans before deciding and then you should also check out loans from other lenders because you never know for sure which loan is the cheapest.
The advantage of having so many lenders who are not banks is mainly the competition and the choices that exist. In the past, as you said, you went to your own bank and asked for a loan and said no you could at best go to one of the other big banks and test your luck. There were not so many choices and not much competition that brought down prices.
There are many lenders and they all compete to have you as a customer
The more competition the more price pressure and that means you can get a cheaper loan in the end. Many of the non-bank lenders also have slightly different options in terms of loan amounts and repayments. For example, there are currently a number of lenders offering small, fast loans. These are a little unnecessarily expensive in most cases, but at least you have the option of taking such a loan if you want. Sometimes you do not need more than USD 5000. There may also be lenders who target loans to people who usually find it difficult to get a loan, for example because of payment remarks.
In summary, it is not possible to say that banks or other lenders are the best. The larger banks often have good interest rates on their loans, but some other lenders also have basically good interest rates. It can sometimes be easier to get a loan from the bank you are a customer at than to borrow from another lender, but there is never any guarantee that your application will be approved if your finances are in imbalance.
If you have a special need, for example, you need to borrow an unusually small amount of money or if you have payment notes, you may have to choose an alternative lender instead of a bank to find a loan that works for you. You can pay a little extra money for their special services, but if you feel it is worth the money, just apply for a loan.