Bank Loans

Did you know that a sizeable percentage of private lenders are actually subsidiaries of major UK banks? To find out more about bank loans, make sure you review our impartial guide

About Bank Loans

Most individuals living in the UK today, at some time or other in their lives, require additional funds over and above their normal income and existing savings, whether it be to buy a new car, go away on a dream holiday, or simply to clear outstanding credit card balances. A bank loan can often be the ideal solution to solve these short term funding problems.

A bank loan is usually the first option someone would consider when looking for additional funds. Most people have usually had dealings with their own high street bank for a number of years, using it as a base for their day to day financial arrangements. Salaries and wages are often paid directly into an individuals' bank account, bills are paid out from the bank, either over the counter, or more commonly these days, by direct debit or standing order. Someone may also have other products with the bank, such as a savings account and a credit card, possibly even their mortgage, life assurance, or pension. There is often a special relationship which develops between an individual and their bank, with a great deal of trust being placed on a single financial institution and as such, many people automatically look to their bank for a loan, without even considering other alternatives.

Common benefits associated to Bank Loans

Most bank loans are available to anyone, not just the existing customers of the bank, although the bank is more likely to offer a loan to someone who already holds their current account, or other services with them, as they already have a financial record of the client. In some cases, preferential rates are available on bank loans to existing customers as a loyalty reward, particularly to those customers who have “gold” or “platinum” current accounts.

The main high street banks have always been the traditional route for someone looking for a bank loan. Bank loans are easily accessible and are quick and easy to arrange, often a loan can be agreed in the local branch straight away and the money can either be automatically transferred immediately into the customers' current account, or a cheque or Bankers' Draft can be made out to a third party (this latter route is particularly useful when buying items such as cars, for example).

Many customers would also prefer to be able to walk into the local branch of their bank and arrange a bank loan in a personal meeting with their account manager. There is often great value placed in the face to face meeting and there is still a high percentage of the population who choose to follow this route, as opposed to the alternative of obtaining a loan by a postal, telephone or internet application, as they are able to take advice from and ask questions directly to, a trusted professional who is known to the individual customer.

Alternatives to Bank Loans

There are, however, several alternatives to the local bank when applying for a loan. These would include, other banks, building societies, finance houses, loan companies and some mortgage companies and it is worth taking time to investigate these alternatives to a bank loan before proceeding. Many of these alternative lenders are able to offer more competitive rates than a bank loan, particularly the centralised lenders, who operate via telephone and Internet applications, as they are not burdened with the financial expense of running a chain of branches in the high street.

These lenders usually work from a central head office, in a location away from city centres, meaning cheaper rents for office space and with fewer employees, leading to greatly reduced overheads and lower costs. These cost savings are able to be passed onto the customer in the form of reduced interest rates. The other main advantage of these centralised lenders over a traditional bank loan is a wider product range due to the fact that they specialise in only providing loans, rather than spreading their resources over a wide range of financial products. A good example of this would be someone with a poor credit history. Ordinarily this person would probably be declined a bank loan. However, they may still be able to obtain a loan through an alternative lender who specialises in adverse credit loans.

Common types of Bank Loans

Bank loans are available in a variety of forms. They can be unsecured loans, where the amount borrowed is relatively small, or for larger amounts, a secured loan could be arranged, where a legal charge is taken over the applicants' house or other property in order to reduce the risk to the bank. Banks can also arrange mortgages which, although not usually viewed in the same way as a bank loan, are simply still another type of secured loan.

As we have previously discussed, bank loans are the traditional method of obtaining extra funds and there are many advantages to following this route. Despite increasing competition from a large number of alternative lenders, there is still a valid argument in favour of bank loans.