A bank loan is when a bank offers to lend money to consumers for a certain period. As a condition of the bank loan, the borrower will need to pay a certain amount of interest per month, or year.
Two Common Categories
A bank loan may fall into one of several categories. Two of the most common are:
- Secured: Often this involves a request by a customer for a large loan. To ensure repayment, the bank obtains from the customer an asset to use as collateral. For a mortgage loan, your bank may secure the house you are purchasing. If you forfeit your loan, you lose your home.
- Unsecured: This category requires no asset to stand as collateral. In general bank loans of this nature are for smaller amounts of money. To make up for the level of risk, banks will charge a higher interest rate.
These two categories embrace several different types of loans. Among the most common are auto loans, personal loans, mortgage loans, and student loans.
Taking Out a Bank Loan
If you are trying to achieve a goal but cannot afford it, taking out a loan may help you. However, bank loans do come at a price. Even if you are using it to consolidate and pay off other loans and bills, it is mindful to remember the lending institution does charge interest. Be mindful of the rates as well as the specific requirements and obligations before you go ahead and take out a bank loan.
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