How Do Bank Loans Work?

Bank loans work similarly to loans from other lenders, but often require good or excellent credit to qualify.

On a similar note...
On a similar note...
How Do Bank Loans Work?

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Bank loans work similarly to personal loans you get from online lenders: After you apply, the bank will review your credit score, history and income to determine how much money to loan you and what annual percentage rate you qualify for.

Once you get the loan, you’ll pay it back in monthly installments. Bank loan repayment terms range from about one to seven years.

Be sure to compare bank loan offers before you apply to get the best rate you qualify for.

Who can get a loan from a bank?

Some banks offer personal loans only to their existing customers. Others will accept loan applications from anyone. If you already have an account in good standing with a bank, you may receive a lower APR or added features, like a rate discount, on a bank loan.

Banks typically require a borrower to have good or excellent credit (690 or higher FICO), multiple years of credit history and a low debt-to-income ratio to take out a personal loan.

If you don’t think you’ll qualify for a bank loan, look for ways to improve your credit or consider a co-signed or secured loan.

Credit union loans often have similar features as bank loans, like low interest rates and flexible repayment terms, but can be an option for people with fair and poor credit scores (below 690 FICO).

Banks offering personal loans

Many banks stopped offering personal loans after the 2008 financial crisis; you can't get a personal loan from Capital One and Chase, for example. Here are banks that offer personal loans and some details about who they may be best for.

Citizens Bank doesn't require a borrower to have an account with the bank to qualify for a personal loan, but it does require a good credit history. It also offers co-sign loans, which can increase your chances of getting the loan you want.

Discover loans are ideal for debt consolidation, thanks to the lender’s low rates, flexible payment terms and direct payments to creditors.

Marcus, the online banking and lending arm of Goldman Sachs, offers low-interest personal loans with no fees. Loans from Marcus are best for borrowers with good and excellent credit looking to consolidate debt. The bank allows borrowers to pick and change payment due dates.

PNC Bank doesn't require you to have an account with the bank to qualify for a personal loan. The bank gives equal weight to your credit score, income and debt-to-income ratio when considering a loan application.

Wells Fargo accepts co-signers on a personal loan and offers joint loans. It typically requires borrowers to have an excellent credit score, but existing customers may be able to qualify with a good credit score.

Lender

Min. credit score

Typical APR range

4.5

NerdWallet rating 

None

6.78 - 20.88%

5.0

NerdWallet rating 

660

6.99 - 24.99%

5.0

NerdWallet rating 

680

6.99 - 19.99%

4.5

NerdWallet rating 

None

9.24 - 29.49%

4.0

NerdWallet rating 

600

5.49 - 24.49%

Click “Check Rates” to pre-qualify on NerdWallet and receive personalized rates from multiple lenders.

Uses for a bank loan

Bank loans can be used for almost any reason. Common uses include home improvement projects and debt consolidation. Some lenders allow you to use a personal loan to refinance an existing loan. Refinancing can make sense if the new loan has a lower rate than the loan you already have.

Some banks offer secured loans for purchases like RVs and boats.

Is getting a personal loan a good idea?

Depending on what you plan to use it for, a personal loan can be a good idea if it can help you reach your financial goals without putting you in financial jeopardy. It can also build your credit history, provided you make payments on time.

Having different types of credit — including revolving credit like credit cards, as well as installment accounts like personal loans — can boost your perceived creditworthiness in the eyes of lenders.

How can I improve my chances of getting approved?

If you’re worried your credit score is too low to get the loan you want, there are a few steps you can take to help you qualify for a personal loan:

  • Check your credit report regularly. You can get your credit reports for free at AnnualCreditReport.com. If you see any errors on your reports, dispute them in writing or by phone.

  • Be consistent about making on-time payments toward all of your debts. This will help improve your debt-to-income ratio as well as build up your payment history, all of which impact your credit score.

  • Apply only for the amount of money that you need. Requesting more than you need means you’ll be making higher loan payments each month, which can jeopardize your budget and ability to pay your debts.

  • Consider a co-signer. If you don’t think you’ll be approved for the loan you want from the lender of your choice, adding a co-signer with a higher credit score and income can boost your approval chances.

Applying for a loan from a bank

Some banks allow you to pre-qualify for a loan to find out how much you can borrow and what rate you qualify for.

Still, most traditional banks don’t offer pre-qualification and instead require you to submit an application, which triggers a hard credit pull and can drop your credit score by up to five points.

Once you’ve compared banks and decided which you’d like to borrow from, you’ll fill out an application. Some banks require an in-person visit to apply or close a personal loan.

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