Personal bank loan: Is a bank the best place to get a personal loan?

The personal bank loan: How it’s changed

Time was when your bank would have been the obvious choice for any sort of borrowing. And the personal bank loan was pretty much the only personal loan you’d consider getting.

Back then, your bank’s branch manager used his (it was almost always a man back then) personal knowledge of you — along with his skill and judgment — to decide how much you could borrow and at what interest rate. Your personal loan’s terms were based on that personal relationship.

Nowadays, vanishingly few bank managers have that discretion. Instead, your loan application details will be fed into the bank’s computer and it will make a decision. And your decades of loyalty as a customer will likely count for little or nothing.

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Personal loan vs personal bank loan

So, unless you’re borrowing from a friend, relation or employer, a computer’s going to decide whether and how much you can borrow. And how much you’re going to pay in fees and interest, too. As importantly, regardless of who owns that computer, it’s going to mainly base its decision on your same, limited personal information.

All this means that the chances of your getting better terms from your bank than another lender are roughly the same as your getting better terms from another lender than your bank. True, some banks offer privileges to existing customers. But, in order to compete, many online lenders provide similar or different privileges.

None of this means you shouldn’t apply for a personal bank loan at your branch or online. By all means, do that. But you should also get quotes from other lenders so you can compare what’s on offer and pick the overall deal that suits you best. Obviously, that’s usually the one that sees you pay the least.

*TheMortgageReports and/or our partners are currently unable to service the following states - MA, NV

Lenders and credit scores

Whether your application is approved and how good a deal you’ll be offered will depend hugely on your credit score. FICO, the company behind the most widely used scoring technology, breaks down its score ranges into categories:

• 800+ — exceptional
• 740-799 — very good
• 670-739 — good
• 580-669 — fair
• 579 and lower — poor

820 credit score: How much cheaper are loans with great credit?

Different lenders tend to specialize in more or less creditworthy borrowers. For example, most major banks like their borrowers to have a good, very good or exceptional score.

Unfortunately, nobody’s likely to be able to help you if the problems that caused your score to drop persist today. And, almost regardless of your borrowing source, you’re pretty much bound to be rewarded for a high score with an inexpensive loan but penalized for a low score with an expensive one.

Credit unions

However, credit unions can be more sympathetic toward those with a troubled credit history. Of course, you may struggle to get approved by anyone if you have a disastrously low score. But you stand a better chance with a credit union than a bank if your score is fair or at the higher end of poor.

Credit unions only lend to members. And many restrict membership to those in certain groups. So, to join a particular one, you might need to:

• Live in a particular area
• Be a member of a particular club or association
• Attend a particular church or denomination
• Be (or have been) a member of the armed forces
• Be in a particular union
• Have or have had a particular occupation

Membership criteria vary hugely. But you won’t get a loan until you join. And, even then, you may not qualify as a borrower until you’ve been in the credit union for a specified period. Rules vary from union to union about how long.

Online lenders

There are loads of online lenders. And each tends to specialize in different sorts of borrowers.

So some will only touch those with exceptional or very good credit. Others are happiest with average (good/fair) creditworthiness. And yet others focus on those with past issues that mean their score’s only fair or poor.

But how do you know which specializes in which category of borrower? That’s where comparison shopping websites (yes, like this one) come in. We match the details you provide with lenders who specialize in borrowers like you. You’ll typically get multiple offers. And you then choose the one that suits you best.

*TheMortgageReports and/or our partners are currently unable to service the following states - MA, NV

Other sources

Once you’ve exhausted the mainstream sources of banks, credit unions and online lenders, you’re left with peripheral ones.

Employers

Some employers are willing to give loans to employees. You’ll probably need to have been with the company for a minimum period. And it will make a judgment that the chances of your leaving during the loan’s term are low. If it deducts payments from your salary checks, it may not worry much about your credit score. And you could get a low interest rate.

Relations and friends

The upside is that your friend or relation is unlikely to do a credit check. You may also get a very low (or zero) interest rate. The downside is, you’re putting a cherished relationship on the line if you can’t repay the loan in a timely manner.

Payday loans

Personal loans are long-term loans and payday loans are short-term ones. Also, personal loans have affordable rates while payday loans typically don’t.

You’d have to be really desperate to take a payday loan in place of a personal loan. Don’t do it unless you genuinely have no choice. Payday lenders have a grim record for ruining lives.

Picking your personal loan

Whether you get a personal bank loan or one from a credit union or online lender, you’ll go through a similar, usually very easy application process. And you’ll want the same things regardless of the source: a low interest rate, low fees and a term that’s long enough for you to comfortably afford your monthly payments.

Trouble is, you can’t tell which lender is going to offer you the best deal. So never apply to just one source. Shop around so you can compare offers. It’s the only way to know you’re getting the best package.

*TheMortgageReports and/or our partners are currently unable to service the following states - MA, NV