If you have ever gone into a bank seeking a personal loan, you just may be shocked to hear about how banks deal with personal loans. While banks deal with all kinds of loans including secured loans, unsecured loans, revolving credit (i.e. credit card), mortgage loans, auto loans and more; the unsecured personal loan is associated with the most “myths” about banks and their dealings with loans.
Myth #1: Banks have “Strict” Lending Policies
Many banks would like you to believe that they have strict lending policies that dictate to whom they can give a loan and under what circumstances those loans can be given.
Truth: With Few Exceptions, Lending Policies are Flexible
The exceptions: Federally insured loans like FHA mortgage loans and some student loans come with strict lending procedures. You do have to meet all the federal rules and regulations to qualify for these loans.
However, all other loans are very flexible and will vary depending on the bank and even the loan officer! The bank has the ability to decide to whom, when and under what circumstances they give a loan. Everything from the minimum credit score to the minimum and maximum loan amounts are based on how they choose to do business.
Myth #2: Banks are Altruistic
Banks give off an altruistic impression with their slogans about “protecting” your money. They give you interest and “free” things to make keeping your money in their institution more convenient.
Truth: Banking is BIG Business
They do not give you the “free” checking and moderate interest for your benefit. They are competing with other banks to use your money. They take it, invest it, loan it to others, and make quite a bit of money with it. Therefore, they need you to stay in business.
Myth #3: Personal Loans Are More Difficult to Approve
Again, banks want you to believe that personal loans are harder to get approved than other loans. They want you to believe any unsecured loan is intrinsically more difficult to process and receive approval on.
Truth: Refer Back to Myth #1.
Banks are free to make up their own rules and they do. Since personal loans are unsecured, they run a higher risk of not getting their money back, and since unsecured personal loans are generally for smaller amounts (a few thousand dollars), they stand to make less money on the interest.
When dealing with a bank, remember they are a business like any other. It is time we stop thinking of them as anything less.