The Advantages and Disadvantages of Bank Borrowing

Consumers borrow money for a variety of reasons. Some consumers need additional cash to finance a new vehicle. Other consumers want to go on a cruise. Still others just want to catch up on their bills. Many consumers consider borrowing money from the bank. Bank loans require the consumer to complete an application, meet with a loan specialist, provide financial documentation and wait for a response. Consumers need to consider the advantages and disadvantages of borrowing money from the bank before pursuing this option.

Interest Rate

Borrowing money from a bank carries the advantage of offering a more competitive interest rate to consumers. For some consumers, their alternatives for acquiring cash involve taking a cash advance on a credit card or pursuing a payday loan. Both cash advances and payday loans carry higher interest rates than those charged by banks. Consumers who borrow money from the bank save money by paying less interest.

Turnaround Time

Another advantage of borrowing money from the bank involves the turnaround time. Consumers who apply for a bank loan typically receive an answer within 24 hours. If the bank decides to approve the loan request, the consumer receives the money right away. Other options for the consumer to receive cash include borrowing against a retirement plan, which can take a week or more for the consumer to receive the funds.

Credit Score Impact

A disadvantage of borrowing money from the bank stems from the impact the loan will have on the consumer's credit score. Banks report their financial accounts to the credit bureaus promptly, creating an immediate adjustment to the individual's credit score. The more money the consumer borrows, the less credit his income will sustain. As this occurs, his credit score decreases. Also any late payments will negatively affect his credit score immediately.


Consumers face potential fees when borrowing money from the bank. Many loan applications require the consumer to pay an application fee. This fee pays for the lender's time while reviewing the application and is nonrefundable. Some bank loans include prepayment penalty provisions. A prepayment penalty provision denies the consumer the ability to pay the loan early and save interest charges. Instead the bank charges a penalty if the consumer pays the loan off early. The consumer may also incur late charges if she fails to make her payments on time.

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About the Author

This article was written by the Pocketpence team, copy edited and fact checked through a multi-point auditing system, in efforts to ensure our readers only receive the best information. To submit your questions or ideas, or to simply learn more about Pocketpence, contact us here.

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