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What is the difference between bank loans and a personal loan?
Bank Loans UK
There isn't much of a difference between a bank loan and a personal loan. They are in essence the same thing, in that you are borrowing an amount of money from a product provider that you will repay at agreed intervals with interest added to the sum. The difference is that a bank specifically provides a bank loan. A few years ago, the bank was one of the only places a customer could get a loan, which is why people used to say they needed a good relationship with their bank manager. Obviously, this isn't the case now, as building societies and many other financial companies also offer loans.
The important thing to understand about borrowing from a bank is that banks do not just offer loans, they also take money in as savings deposits, offer mortgages, and some offer insurance as well. When depositors pay in money to banks, the banks have to pay them interest. This is because the banks are taking in money that is not theirs, which they are able to use for investment purposes. One of the investments they can make is providing loans. They then charge interest on those loans, as their customers are taking money that isn't theirs. Banks can then recover the cost of lending and make a profit on the loans, part of which they can use to pay interest to borrowers.
A bank will tend to be more careful about who they loan money to. They are far less likely to offer loans to applicants with bad credit ratings, as by their very nature, banks are more cautious in terms of investment. Therefore, you will need to provide good proof that you are able to repay the loan, and have a good credit history. You can also apply for a loan for any reason, as long as it is legal, and you need to be 18 years old or over.
The reasons why they need to know what your reasons are for lending are not necessarily to check that they are legal, for marketing reasons or for 'big brother' type observance. They are not trying to catch you out, rather than that they could have special terms that are more suited for a particular type of purchase. For instance, lendings for home improvements, money is not required all at once. Whatever your quote for a home improvement, you may have found out already that the amount you eventually need could end up much larger or sometimes smaller than you expected. For this reason, a bank may offer a home improvement lending in branches, so the borrower does not borrow too much or get stuck having borrowed too little.
Frequently Asked Questions
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