Bank Loans

What is a bank loan?

A bank loan is a blanket term used to describe borrowing money. It can mean a personal loan, a mortgage, a secured loan or an unsecured loan. A lot of the time, when someone talks about a bank loan, they mean a personal loan. You may be unaware that high-street banks aren’t the only places you can apply for a personal loan.

Many borrowers turn to the bank that they hold a current account with when looking for a loan, but is this a good idea?

High street banks often have strict lending criteria, so you may be rejected for a loan if your credit rating isn’t good. There are other ways to borrow that may be better suited to you, like a credit union.

My Community Finance works with credit unions who provide affordable loans to those who might not be able to get a loan from a bank.

Credit unions are not-for-profit organisations. This means that any profits made through lending is returned to its members in the form of interest on savings or reinvested back into the credit union to improve services for its members.

Can you get a bank loan with bad credit?

In the UK, your credit score will fall into one of four categories: ‘Excellent’, ‘Good’, ‘Fair’ or ‘Bad’.

In most cases, unless you have an ‘Excellent’ or ‘Good’ credit score, you’re unlikely to be accepted for a bank loan.

The credit unions we work with offer loans designed for those with fair credit or better than fair credit. If you have a bad credit score, it could be a good idea to take steps to improve your credit score before applying for a loan.

How easy is it to get a bank loan?

Banks tend to have strict lending criteria and will only offer the best bank loans to those with a ‘Good’ or ‘Excellent’ credit score.

The credit unions we work with offer loans to those with fair credit scores or better than fair credit scores. To get a loan from one of our partner credit unions, you will need to become a member, but they accept members from almost all fields of employment as well as members of organisations like the National Trust and the Co-op.

Similar to applying for a bank loan, you’ll need to pass the relevant affordability and creditworthiness checks, which will be run by the credit union when you apply.

You’ll also need to:

Be between the ages of 21 and 65
Be employed and earn £18,000 a year or more
Live in the UK (excluding Northern Ireland, the Channel Islands and the Isle of Man)

When you apply for a loan via our online portal, we’ll match you with one of our partner credit unions.

Are credit union loans cheaper than banks?

Typically, the cheapest bank loans are only offered to those with excellent credit scores. If you do not have an excellent credit score you may not qualify for the lowest rates of interest from a bank

When you apply for a loan with one of our partner credit unions, you’ll receive a personalised interest rate based on your individual circumstances.

The overall cost of your loan will depend on your interest rate, the amount you borrow and how long you borrow for - longer loan terms will typically bring your monthly repayments down but can increase the overall cost of your loan.

You can use our loan calculator to get an idea of how much your monthly repayments might be, as well as the overall cost of a loan.

Remember, though; the calculator uses a representative APR, this is used as an indication of what a typical borrower will pay in interest. Your APR, monthly repayments and overall loan cost could be higher or lower depending on your circumstances.

Should I get a bank loan?

It’s a good idea to research bank loans from places other than the bank you hold a current account with when looking for a loan, because your bank isn’t automatically going to give you the best deal.

It’s a good idea to research other options too. A credit union may be able to give you a better deal, plus, credit unions are ethical lenders; the money made through borrowing is returned to its members or reinvested in the credit union to improve its services.

How much can I borrow with a bank loan?

Most banks offer personal loans between £1,500 and £25,000. Banks will usually allow you to borrow over one to seven years, depending on the amount.

The credit unions we work with offer personal loans between £1,500 and £25,000 over a period of one to five years.

With loans from banks and credit unions, the amount you’ll be able to borrow will depend on your personal circumstances, such as your affordability and what you want to borrow the money for.

What are the benefits of a credit union vs a bank?

Credit unions are an ethical way of borrowing. They’re focused on customer service and building communities and don’t have shareholders that profit from lending.

Here are some of the benefits of credit union loans:

Generally have some of the best rates for those with ‘Fair’ credit scores - the credit unions we work with don’t have any fees or charges attached to their loans.
Customer focused - all profits made by credit unions are returned to its members, either through interest or dividends on savings accounts or though improving the services they provide to members.
Credit unions are often able to offer loans to those who may struggle to get a loan from a bank - many traditional high street banks only offer loans to those with good or better credit scores. The credit unions we work with offer loans to those with fair credit scores or better, who may be turned down for a bank loan.

Can I have more than one bank loan?

You’re typically allowed to have more than one bank loan at a time, but you won’t necessarily be approved for a loan if you already have one; it will depend on whether you can afford additional repayments. Some banks will allow you to increase the size of your existing loan.

If you already have a loan with one of our credit unions it is possible to apply for another loan using our online form. However all loans are subject to creditworthiness and affordability tests and if you find yourself unable to afford the repayments this can affect your credit score. However, carefully consider if you will be able to afford the repayments on two loans before you do so.

Can you pay a bank loan off early?

You’ll be able to make early repayments on bank loans, but some lenders will have early repayment charges.

The credit unions we work with allow you to make early repayments or pay back your loan in full before the end of your loan term, but this will be subject to contractual early payment fees. However, you can repay your loan fully without incurring any fees if you do this within 14 days of the day you received the executed loan agreement.

What do I do if my bank declined my loan application?

There are a number of reasons why you might have been declined for a bank loan. It may be to do with your credit history, you might have entered incorrect information, or you might just not be the kind of borrower the bank is looking for.

If you’ve been denied a bank loan from a traditional high street bank, you should first check your credit report for errors. If you feel you’ve been rejected because you have poor credit, it may be worth taking steps to improve your credit score before applying with another lender.

Here are some things you can try to boost your credit score:

Ensure you pay all bills and credit repayments on time and in full
Make sure you’re on the electoral roll, even if you don’t plan on voting - this helps to prove your fixed address
Try not to make more than two hard credit searches within a six-month period - too many applications for credit in a short period of time may suggest to lenders that you’re in financial difficulty
Check all the information on your credit report is correct and up-to-date if you spot a mistake, let the credit reference agency know ASAP
Refrain from withdrawing cash from credit cards; this can make lenders think you’re in financial difficulty
Aim to keep your credit card utilisation below 25% of your credit limit. Borrowing more that 25% of your limit can put some lenders off because it suggests you may be in financial difficulty

If you’ve got a fair credit score, it may be worth applying for a loan with one of the credit unions we work with. Remember, though, making multiple credit applications can damage your credit score, and each time you apply for a loan, a hard credit search will be performed, which other lenders will be able to see on your credit report.

You can request a personalised quote first, which will tell you if you are likely to be accepted and what interest rate you will be offered. To provide you with this we’ll perform a soft credit check which won’t affect your credit score, and only you will be able to see a record of it on your credit report.

Do credit unions offer the same financial protection as banks?

Yes, credit unions are authorised by the Prudential Regulation Authority (Bank of England) and regulated by the Financial Conduct Authority (FCA), just like banks.