🏦 What Is a Bank Loan?
A bank loan is money borrowed from a financial institution that must be repaid over time, typically with interest. Banks in the U.S. offer different types depending on the borrower’s needs (personal, business, home, etc.).
🔑 Main Types of Bank Loans
1. Personal Loans
- Unsecured (no collateral required).
- Used for debt consolidation, medical bills, home improvements, or big purchases.
- Loan amounts: usually $1,000 – $50,000.
- Interest rates: ~6% – 36% depending on credit score.
2. Auto Loans
- Secured by the car itself.
- Loan terms: 36–84 months.
- Interest rates depend on credit score, new vs. used car, and dealership vs. bank financing.
3. Mortgage Loans
- Secured by real estate.
- Common types:
- Conventional (fixed or adjustable rates)
- FHA Loans (for first-time buyers with lower credit)
- VA Loans (for veterans, no down payment)
- USDA Loans (for rural properties)
- Terms: 15–30 years (sometimes 40).
4. Home Equity Loans / HELOC
- Use your home’s equity as collateral.
- Lump sum loan (Home Equity Loan) or revolving line of credit (HELOC).
- Often lower rates than personal loans.
5. Small Business Loans
- Offered by banks and SBA-backed programs.
- SBA 7(a) loans: up to $5M, favorable terms for small businesses.
- Microloans: up to $50K, often for startups.
6. Student Loans
- Federal loans (via FAFSA): subsidized, unsubsidized, PLUS loans.
- Private student loans (through banks/credit unions).
💳 Key Loan Terms to Understand
- Principal: The original amount borrowed.
- Interest Rate (APR): The cost of borrowing, expressed yearly.
- Term: Length of repayment (e.g., 3 years, 30 years).
- Collateral: Property pledged for secured loans (e.g., car, house).
- Prepayment Penalty: Some loans charge if you pay off early.
✅ What Banks Look For (Approval Factors)
- Credit Score: Higher scores (700+) get better rates.
- Income & Employment Stability: Proof you can repay.
- Debt-to-Income Ratio (DTI): Lenders prefer < 36%.
- Collateral: For secured loans.
- Loan Purpose: Clear, legitimate reason for borrowing.
💡 Tips to Get Approved
- Check and improve credit before applying.
- Pay down existing debts to lower DTI.
- Save for a down payment (especially for auto/mortgage).
- Shop around: compare banks, credit unions, and online lenders.
- Consider prequalification (soft credit check, no impact on score).
📊 Average Interest Rates (2025 Estimates)
- Personal loans: 6–20% (excellent credit → lower rates).
- Auto loans: 5–12%.
- Mortgages: 6–7% (30-year fixed).
- Home equity loans: 7–9%.
- SBA business loans: Prime rate + 2–4%.
👉 Would you like me to create a comparison table of major U.S. banks (Chase, Wells Fargo, Bank of America, credit unions, online lenders) and the types of loans they’re best for? That way you can see which lenders fit your needs.