Pros and cons of taking a bank loan

Cibil scores also known as credit score is a numerical expression based on a level analysis of that specific person’s credit files. Lenders such as banks and credit card companies use this score to evaluate the potential risk posed by lending money to consumers and reduce the losses due to bad debt. The cibil score is not only limited to banks, but, also to other organizations such as mobile phone companies, landlords, insurance companies, etc.

Importance of having a good cibil score

It is important to maintain and build a good cibil score to get different types of loans such as housing loans, car loans, etc. You can build your score by clearing credit card bills on time or repayment of loans you got from a bank on time. You can search on the internet for a free cibil check to check your score. A credit score usually takes around 18 months to 36 months of credit usage to build.

What is a bank loan?

A bank loan is a financial aid you take from a financial institute. A bank provides different types of loans for your needs, such as; consumer-durable loans, car loans, personal loans, housing loans, and more. To get the required amount of loan, you need to have a high credit score. Without a decent score, you might not get a loan, or you have to settle with a low amount.

Advantages of a bank loan

  • Loans from banks provide flexibility. A bank allows an individual to repay the loan at their convenience. As long as the installments of the amount are made on time and regularly. Also, there is no restriction to where you spend the money you’ve taken as a loan (in the case of personal loans).
  • When it comes to interest rates, banks are the best option as their rate of interest is very minimal, which makes them customer-friendly. Loans have cheaper interest rates than your regular credit cards. And so, if you want to take a bigger amount, you should always prefer taking a loan since you pay way lesser interest rates. For example, if you are planning to get a business loan, you should contact a bank rather than venture capitalists or other high-interest loan-providing firms.
  • Until and unless you are not making your payments on time to the bank, you won’t be required to give up equity. So, that is another advantage of taking a bank loan.

Disadvantages of a bank loan 

  • Profitability:This is one of the major points you need to keep in mind while taking a loan from a bank. No bank will sanction you a loan without you providing them a collateral. So, if you fail to provide a collateral of same of amount, the bank might not issue you the loan. This is a pretty big disadvantage especially if you want personal or business loan.
  • Complicated: Bank loans can be a bit complicated. More than complicated, time-consuming can be the correct word for the process of loan undertaking. Since, taking a loan requires a lot of paperwork, signing a hundred documents, providing the bank with adequate proof and documents, and a lot more, it can take a lot of time. A bank loan verification process can take several months. And, that can get frustrating.

I hope this article solves all the questions you have related pros and cons of a bank loan and how your credit score affects your eligibility to get a loan.

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