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What is a Bank Loan?

A bank loan is borrowed credit in which an agreed amount is provided by a lender, in this case a retail bank. Whether you are seeking a line of credit for a business, or a personal loan to renovate your home, there are a variety of different types of bank loans for different circumstances we commonly undergo in our lives.

We compare the Top Loan Providers:

  • Sainsburys
  • Zopa Loans
  • Cahoot Loans
  • TSB
  • Everyday Loans
  • AA Loans
  • Nationwide
  • Santander

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Secure Bank Loans

Getting a secured loan (otherwise known as a homeowner’s loan) might be a good option for you if you’re in need of urgent capital that won’t leave you burdened with high interest payments that are typical from other loans. The rule is, you must secure a physical asset which is valued at or above the amount of capital being borrowed from the bank, such as the equity in your home. One could argue that this type of bank loan is quite daunting as you’re putting your high valued possessions on the line. However, it gives the bank a tangible piece of security (like an insurance policy) to secure your debt, which usually allows you to borrow significantly more cash than through an unsecured loan due to added lender’s confidence. The people reading this article would be asking by now, "when should I get a secured loan"? To answer this question, it is important to understand the circumstances in which this type of bank loan is a good option Are you thinking about filing for bankruptcy? A debt consolidation loan could potentially reduce your monthly outgoings by 50% by paying off all other debts and leaving you with only one repayment. This secured bank loan could help you regain your credit score rating, instead of losing everything and starting from scratch. Another common secured bank loan is a second mortgage. The amount of capital you can borrow depends on the existing equity you own in the property so you can secure that against the debt.

Unsecured Bank Loans

Unsecured bank loans typically charge higher interest rates than secured loans. An example of an unsecured bank loan is a ‘short-term’ line of credit. If you need to borrow cash in an emergency due to an unforeseen problem such as a broken down car, then you only need to obtain a small amount of cash. As the duration of the repayment schedule lasts no longer than a few weeks/months, banks charge an average of 45-46% interest on top of the principal amount owed. A short-term bank loan could also be repaid as a ‘pay day’ loan, which means the borrower can pay the final instalment on the day of his/her monthly salary cheque.

How Much Would a Bank Loan Cost Me?

The amount of interest charged on top of the principal owed to the bank is dependent on a few variables. For a secured bank loan: (a) the loan amount, (b) duration of repayment, (c) your credit score rating, (d) and the equity (value) you own in your home all determine the monthly debt repayments. Generally speaking, the longer the repayment period the more interest charged, however this still reduces the amount you pay per month as the total amount borrowed is more spread out. On the other hand, short-term bank loan interest rates will always be much more expensive irrespective of the duration of repayment.

Is a 0% purchase Credit card for me?

A purchase credit card is ideal for you if you plan on making a lot of purchases, especially purchases that have a high ticket price. However you must be confident that you are going to be able to pay off your credit payments each month in order to avoid paying interest before the 0% period ends. If however you feel that you are unlikely to be able to pay the full amount within one year then you are better off just paying for a low interest credit card.

Making a Decision

Whichever situation is relevant to you, it should be taken into account that banks are more prejudiced in their lending criteria for new and existing customers after the recession. This is especially the case if you want to borrow an unsecured bank loan of £25,000 or more because you are not giving the bank any incentive through collateral, which would otherwise be used in a secured loan option. If you have a low credit score, then it is best to go for the best option with minimal debt by borrowing as less as possible.

ME Expert Ltd is not authorised to provide advice and are introducing you to a regulated firm with whom we are not under a contractual obligation to conduct insurance mediation business with exclusively. You should ensure you provide any potential insurer with your full details and ensure that you are eligible to make a claim(s) in relation to the cover offered. ME Expert Ltd will receive a small payment for this introduction which will not normally exceed £35.

ME Expert Ltd does not give advice on or recommend any particular insurance product or service or whether it is suitable for your personal circumstances. The information provided is to help you to make your own choice about how to proceed