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How Do Bank Loans Work?

Bank loans work similarly to loans from other lenders, but often require good or excellent credit to qualify.
Oct. 7, 2019
Loans, Personal Loans
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 five 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 (690-850 on the FICO scale), multiple years of credit history and a low debt-to-income ratio to take out a personal loan.

Banks typically require a borrower to have good or excellent credit, 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).

Many banks stopped offering personal loans after the 2008 financial crisis. Some, including Bank of America and Chase, don’t currently offer personal loans.

Banks offering personal loans

LenderMin. Credit ScoreTypical APR rangeGet started
Marcus by Goldman Sachs
5.0 NerdWallet rating
6606.99-28.99%
at Marcus
Discover
4.5 NerdWallet rating

6606.99-24.99%
on NerdWallet
Citizens Bank
4.5 NerdWallet rating
None6.80-20.90%
on NerdWallet
PNC
4.0 NerdWallet rating
None5.99-29.49%
on NerdWallet
Wells Fargo
4.0 NerdWallet rating
6605.24-18.74%
on NerdWallet
Click “Check Rate” to pre-qualify on NerdWallet and receive personalized rates from multiple lenders.

Uses for a bank loan

Bank loans are often unsecured personal loans, meaning they don’t require collateral. These loans can be used for most large expenses like home improvement projects, debt consolidation or emergency expenses.

» MORE: Should I get a personal loan?

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.

» MORE: Pre-qualify for an online loan with NerdWallet

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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