What Are Personal Bank Loans?

Personal loans are a type of loan that you can use for a variety of purposes. If you’re approved for a personal loan, you’ll receive a sum of money that you must then pay back over time with interest. Personal loans sometimes also have other fees, such as origination fees.

Personal loans are offered by a variety of lenders like banks, online lenders, and credit unions. A personal bank loan is simply a personal loan taken out with a bank.

Banks are the most popular provider of personal loans, but they may not be the best provider for you.

How a Personal Loan Works

You can apply for a personal loan from a variety of lenders, including banks. If you are approved for the loan, the lender will lend you a sum of money. You must then pay back this money, typically in equal monthly payments (installments), over a set period—generally one to five years.

You will pay interest on the loan, and you may be charged fees as well. Personal loans can be used for almost any purpose, whether you need to make a major purchase, consolidate debt, or pay for an emergency expense.

The cost of a personal loan varies and depends on the interest rate you are offered and how long you’ll spend paying back the loan, along with any fees that the lender charges.

The interest rate you will be charged depends on how much you borrow and your credit score. It can also depend on other factors such as your annual income, payment history, and debt-to-income (DTI) ratio.

Personal Bank Loan vs. Personal Loans from Other Lenders 

You can get a personal loan from financial institutions like banks, credit unions, and online lenders. Banks are the most popular source of personal loans. Personal bank loans have both advantages and disadvantages over personal loans from other lenders.

• Convenience: If you are already a customer of a particular bank, it can be convenient to arrange a personal loan through them. You can also use the bank’s network of branches.
• Borrowing limits: Personal loans from banks can have higher borrowing limits than loans from both credit unions and online lenders. If you need a large loan, a bank might be your you best option, but credit unions should be considered as well, as some can rival banks in the size of loans offered.
• Interest rates: Personal loans from banks generally have lower interest rates than those from online lenders, but higher than loans from credit unions. Interest rates can be variable, however, so check all three sources before committing to a loan.
• Fees: Some banks charge high fees for their loans, but some don’t. Again, be sure to shop around before choosing a loan.

Main Features of a Personal Loan

Since personal bank loans can be used for almost any purpose, loan terms vary a lot. Some loans are for $1,000, and are paid back over a couple of months. Others can be for as much as $50,000 or $100,000, and take 10 years or more to repay.

The main features of a personal bank loan are:

• Interest rates: Interest rates determine how expensive the loan is. The best personal loans currently offer interest rates of 9% to 25%, depending on how much you borrow and your credit score.
• Fees: Some banks charge closing or origination fees for their personal loans, so make sure you check these before choosing a loan.
• Prepayment penalties: Some banks will charge you if you pay off the loan early. If you’re planning to do that, make sure you understand the fees you’ll pay.
• Repayment schedule: Most personal loans are paid back in equal monthly payments, although some have different schedules.
• Length of loan: Some personal loans need to be paid back in less than a year. Others can take more than a decade. The longer the loan, the lower the monthly payments, but the more you’ll pay in interest.
• Borrowing limits: Most banks won’t give you a personal loan for more than $50,000, though some will go as high as $100,000 for borrowers with good credit.
• Collateral: Most personal loans are unsecured, so you don’t need to put up collateral, but it’s also possible to find secured personal loans if you have trouble qualifying for an unsecured loan.

Common Uses of a Personal Loan 

Personal loans can be used for almost any purpose, and most banks won’t ask you to specify what you want to use the loan for. Common uses for a personal loan include:

• Moving expenses
• Debt consolidation
• Medical bills
• Wedding expenses
• Home renovations or repairs
• Funeral costs
• Vacation costs
• Emergency expenses

Personal loans are different from other installment loans like student loans, car loans, and mortgage loans, all of which are used to fund specific expenses like education, vehicles, or homes. You can use a personal loan for nearly any purpose.

Qualification Requirements 

While you are applying for a personal bank loan, the bank will look at a number of factors to assess whether you qualify.

The most important factor is your credit score. You’ll typically need a credit score of at least 640 to 670 to get the best loan terms. The higher your credit score, the lower the interest rate you will be offered.

Your credit score is affected by your payment history and a number of other factors. If you have a poor credit score, you may want to take steps to repair your credit score before applying again. That may include paying down debt and making all your payments on time.

How to Apply for a Personal Loan 

Applying for a personal loan involves four main steps:

1. Find a loan: You can research personal loans online. Be sure to check multiple lenders, because the cost of personal loans can vary a lot.
2. Get pre-qualified: Some lenders allow you to pre-qualify for loans. This involves a soft credit check that doesn’t affect your credit score.
3. Collect the necessary documents: Some lenders will ask you to prove your income by providing pay stubs or a bank statement. Others will just ask for ID such as a passport or driver’s license.
4. Apply online: Most lenders will allow you to apply online for a personal loan. When you officially apply, the bank will perform a hard credit check, which could temporarily ding your credit score.
5. Wait for a decision: Some lenders will make a decision immediately and fund the loan that day if you are approved. Most lenders will make a decision within a few days.

The Bottom Line

A personal bank loan is a sum of money that can be used for almost any purpose, and is paid back over time with interest. Personal loans tend to have high borrowing limits, reasonable interest rates, and can be convenient. You may be able to get a better rate, however, by taking a personal loan from a credit union.

Consider talking with a financial advisor for guidance on your financing options and which may be best for your situation.