Advantages and Disadvantages of Bank Loan

Some of us are relying on bank loans if we need to obtain paying assets, operating capital, and funds for business expansion. This might be the best option but you must be aware of the advantages and disadvantages of a bank loan before you apply for it, you must do research.

Do note that the amount of money you borrowed needs to be paid within the agreed repayment schedule. In addition, the amount you need to pay will depend on the size and duration of the loan plus the rate of interest.

Here are the Advantages and Disadvantages of Bank Loan:

Advantage of Bank Loan

  • You will be able to fund something you like, it can either be a business, car, house, etc.
  • Loan can be paid by terms. Meaning, you will decide how much and how long you want to pay the loan. If you choose to pay it for a short time, you will pay a bigger amount of money while if you choose to pay it longer, you will pay a bit lower. However, do note that the longer you chose it the longer you will pay the interest rate.
  • Bank loan is temporary. Once you paid for the loan your obligation is done.
  • No need to share your profit to your bank lender
  • Bank personnel will not be involved in your business or ownership

Disadvantage of Bank Loan

  • Hard to qualify. If you apply for a large amount of loan there are qualifications you must pass. Banks are very vigilant when someone is applying for a large amount of loan, they only approve applicants who they think will be able to repay the loan
  • High-Interest Rate. This is one of the downsides when applying for a loan, they have a very high-interest rate. Only a few banks offer a low-interest rate for loans
  • Not all loan is flexible, some loans will require you to pay high-interest rate on funds you’re not using
  • You may experience difficulty in paying it monthly
  • Your assets and collateral can be at risk if you don’t make repayment

Before you apply for a loan, consider your financial capability first. A loan might help you with your expenses but do note the risks that it has including a large interest rate. So if you think you still have other options, you may consider that. But still, the decision will depend on you. Just make sure that if you apply for a loan, be a responsible payor.

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