Personal Loans

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Personal Loans

How Personal Loans Measure Up Against Old-School Bank Loans

When you are in dire financial straits or need funds for a large purchase, there are usually several options at hand. First, there are family and friends who could be asked for money. Secondly, there are banks with their conventional forms of credit. And thirdly, there are online-based lenders providing so-called personal loans. 

While asking friends for help brings embarrassment and possible souring of relationships, impersonal institutions look like a better option. But should you take out an old-school loan, such as a mortgage, or opt for modern alternatives? Here is a comparison between the two. 

Who can apply

Personal credit is undeniably easier to obtain due to more lenient requirements for qualifying. Banks not only check an applicant’s credit score, their income and background, they also ask for collateral. This means that if you fall back on your payments, the lender will seize your property (vehicle, home, etc.) that serves as a guarantee of repayment. 

Personal loan providers, on the other hand, will focus on just your income and credit history. Collateral is not always required. Moreover, the credit score they accept as the threshold is often lower. This means that if your relationship with borrowed money was turbulent in the past, getting a personal loan is probably your only accessible option. 


In general, a personal loan may be spent as the borrower wishes. The purpose of borrowing from banks is determined at the very start, and the funds may only be spent in accordance with the contract. For example, a loan for a car may only be used for the purchase of a vehicle. 


No organization is willing to accept dubious applicants who fail to repay. This is why banks and other credit sources require collateral – in case of your defaulting, they may sell your property to cover the debt. Some personal loans require no collateral, but they are generally more expensive. Besides, you can count on more moderate loaned amounts. Overall, the maximum possible sum for such institutions is relatively low – up to $50,000 in most cases.

Repayment period

Both types have a fixed period of repayment pre-determined in the contract (usually, between 12 and 36 months). 

Cost of borrowing

A loan is transferred to you as a lump sum, and your fixed monthly payments comprise a share of the principal amount (the sum you borrowed) plus interest (i.e., the cost of borrowing).  In both cases, reliable lenders specify the interest plus all additional fees (if applicable) in the contract. 

Interest is shown in the form of an annual percentage rate (APR). The sooner you repay the debt – the less you will end up paying in total. Both conventional and personal loans allow repayment before the due date (sometimes, this may involve a special fee). 

The interest rate offered by your bank or online lender largely depends on the institution, the type of loan and your credit score. In both cases, the lender needs to see that your monthly income allows you to make the required monthly repayments.

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