For most consumers, the bank is a location where you store your money until you later need to retrieve it. However, the primary purpose of a bank is to make loans as this is how they generate a profit. You might be surprised at the types of loans that a bank offers and how you might benefit from some banking services.

Secured Loans Vs. Unsecured Loans

Some types of loans you might be familiar with are car loans or mortgages. These are referred to as secured loans and are backed by collateral. The collateral, such as a house or car, is used to pay for the loan in the event that you are unable to make your payments. However, banks also offer unsecured loans.

Qualifying for an Unsecured Loan

The unsecured loan exists primarily for borrowers who have an excellent credit score. You should speak with a bank ahead of time to find out the type of credit score they are willing to loan to.

The size of the loan they are willing to offer is based partially on your credit score and also on your income. Your interest rate will be lower if you are considered an ideal customer. However, if you have been with a bank for a number of years, they are more likely to offer you a loan.

Reasons to Obtain an Unsecured Loan

There are many advantages to an unsecured loan. Sometimes you simply need a loan and there is nothing that you can use for collateral. You might want to make a purchase at an opportunity when you are able to buy a product at a discount and an unsecured loan can be highly convenient under these circumstances. 

The Effects of Not Paying Off a Loan

If you default on an unsecured loan, your property will not be seized. However, you will suffer the consequences of your credit score being hurt and you will eventually need to pay back the loan. The loan will also accrue interest and penalties so the amount you will owe will increase over time.

Installment Loans

With an unsecured loan, you will usually only need to make the minimum monthly payment. Therefore, you may hold onto the same loan for years and the bank will collect interest. However, if you choose an installment loan, you will be expected to make regular monthly payments until the loan has been paid off.

For more information on personal banking, contact your local bank.