Advantages & Disadvantages of Bank Loans

by William Pirraglia; Updated September 26, 2017
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Whether for individuals or businesses, bank loans are the most popular source of financing. They offer both advantages and disadvantages that make bank loans the best or worst option depending on the borrower's situation. Understanding the positives and negatives surrounding bank loans help people make the wisest decisions when they need loans.

Advantage: Competitive Interest Rates

Individual and commercial bank loans typically offer competitive market interest rates and other reasonable repayment terms when compared with non-traditional lender offers.

Advantage: Bank Loans Are Always Available

Bank loans should always be available since institutions must keep their depositors' money "working" and earning more interest than the bank is paying on deposits.

Advantage: Better Banking Relationship and Terms

For borrowers who meet lending criteria, bank loans cost less than other financing sources, offer liberal repayment terms and enhance an overall good relationship with one's financial institution.

Disadvantage: Possible Delay In Getting the Loan

Depending on a borrower's immediate need for cash, the longer processing time often required by busy bank personnel may result in an unacceptable delay.

Disadvantage: Not Everyone Qualifies for a Bank Loan

To get a low-cost bank loan, borrowers should have good to excellent credit scores. Borrowers with challenged credit should investigate other lending sources.

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