Advantages and disadvantages of a bank loan

There are advantages and disadvantages to a bank loan. On the upside, there are a wide variety of uses for the money secured from a bank loan. On the downside, some people borrow too much money and get trapped by their debt. However, with sound judgment and discretion, a bank loan can provide much-needed funds for a borrower.

Advantage: Speed

A bank loan can be secured quickly; in less than an hour, a qualified borrower can complete a bank loan transaction.

Advantage: Uses

A bank loan can be used in a number of ways; money can be borrowed for many large-ticket items, such as furniture, vehicles or home renovations.

Disadvantage: Fees

Some loans carry a prepayment penalty, preventing the borrower from paying the note off early without incurring extra cost.

Disadvantage: Limitations

There are a number of limitations on the transaction. Good credit is often required to borrow money, and there are stipulations on how the money can be used.

Disadvantage: Cash flow

Borrowing too much money can lead to decreased cash flow and payments can even overtake income in some cases; this is why many loan payments are limited to a certain percentage of a borrower's income.

Cite this Article A tool to create a citation to reference this article Cite this Article

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.

Try our awesome promobar!