Advantages and disadvantages of a bank loan

Updated April 17, 2017

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.

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