🏦 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 — such as personal, auto, mortgage, business, or education.
🔑 Main Types of Bank Loans
- Personal Loans
- Unsecured (no collateral required).
- Commonly used for debt consolidation, medical bills, home improvements, or big purchases.
- Typical amounts: $1,000 – $50,000.
- Interest rates range from about 6% – 36%, depending on credit score.
- Auto Loans
- Secured by the car itself.
- Loan terms usually 36–84 months.
- Interest rates vary based on credit score, whether the car is new or used, and whether financing is through a dealership or a bank.
- Mortgage Loans
- Secured by real estate.
- Common types include Conventional (fixed or adjustable), FHA (for first-time buyers with lower credit), VA (for veterans, no down payment), and USDA (for rural properties).
- Repayment terms typically 15–30 years (sometimes 40).
- Home Equity Loans / HELOC
- Uses your home’s equity as collateral.
- Options include a lump-sum loan (Home Equity Loan) or a revolving line of credit (HELOC).
- Generally offer lower interest rates than personal loans.
- Small Business Loans
- Available directly from banks or backed by the Small Business Administration (SBA).
- SBA 7(a) loans allow borrowing up to $5M with favorable terms.
- Microloans (up to $50K) are common for startups or smaller ventures.
- Student Loans
- Federal loans (via FAFSA): subsidized, unsubsidized, or PLUS loans.
- Private student loans also available from banks and credit unions.
💳 Key Loan Terms to Understand
- Principal: The original amount borrowed.
- Interest Rate (APR): The cost of borrowing, expressed yearly.
- Term: The 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
- Credit score (700+ usually earns the best rates).
- Income and employment stability.
- Debt-to-income ratio (DTI) under 36% is preferred.
- Collateral for secured loans.
- A clear, legitimate loan purpose.
💡 Tips for Approval
- Check and improve your credit before applying.
- Pay down debts to lower DTI.
- Save for a down payment (especially for auto or mortgage loans).
- Compare multiple lenders — banks, credit unions, and online options.
- Consider prequalification (soft credit check, no score impact).
📊 Average Interest Rates in 2025
SBA business loans: Prime rate + 2–4%.
Personal loans: ~6–20% (lower if credit is excellent).
Auto loans: ~5–12%.
Mortgages: ~6–7% for a 30-year fixed loan.
Home equity loans: ~7–9%.