The advantages and disadvantages of availing bank loans


Loaning money is one of the most flexible way to start something that you are planning to do regardless if you want to start a business, or purchase an inventory for your expansion, or you just need a substantial amount of money for personal use, and if you do not have the money in your pocket, you will surely need financing which is why one of your options is to secure a bank loan.

This kind of loans can offer you to certain tax breaks and also you can have lower interest rates compared to your credit cards and your overdrafts, however, you should meet certain requirements and the burden of repayment which can wear you down especially if you fail to pay the monthly dues on time.

Everyone wants to avail of a loan for different purposes and usage, however, despite its advantages, it also has its own downsides that you have to learn especially that money is involved in it.

Below is an outlined information about the advantages and the disadvantages of bank loans for your own convenience. For less hassle personal loans and payday loans check out

Bank loans

  • Flexible- Because of bank loans you worry-free from making your regular installment payments on the due date because of overdrafts which is a notable advantage of bank loans, where you have to pay the full amount when the bank demands it and to add more, banks usually monitor how you use your loan as long as you pay it on time, so that you can invest however you prefer it for your own convenience and benefit.
  • Cost effective- Interest rates in bank loans are usually the cheapest option between overdrafts and the credit cards because the average fixed interest rate for credit cards has surged to 17.49 percent while the certain bank-provided loans guarantee you by the Small Business Administration which have rates that range from 7.5 to 10 percent, while the lower interest rates of bank loans meanwhile can definitely save you a lot of money.
  • Retained profits- If you are using the bank loan for your business, this issues equity in raising capital which usually has a given percentage of the profits to the shareholders while banks also require borrowers to pay only the principal as well as the interest amount of the loan, and as such, you can freely retain all your business profits without any worries.

Bank loan disadvantages

  • Very strict requirements- Before you get too excited, bank loans require its applicants’ collateral as well as startups and an existing business that can be used as collateral and if you do not have any assets that can be used as collateral, you are instantly not qualified for a bank loan knowing that the amounts that you can avail in bank loans are relatively big amounts of money.
  • Burden when you start repaying- The majority of the loan borrowers have to make periodic payments to the banks that they borrowed. Those who fail to make the payment are potentially facing the seizures of the assets placed as collateral. Even if you are able to make late payments, your bank will report you to the credit bureaus that will surely affect your credit scores.