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What are the major disadvantage of bank loan

By Team 11 | Insurance | Feb 11, 2019
Bank loan is a sum of money borrowed from the bank to assist for certain planned or unplanned events. The borrower is required to pay back the loan, including the interest charged over a stipulated period. A bank can grant a loan in the form of a secured or unsecured loan.

There are many types of bank loans in India.

  • Personal loan

  • Credit card loan

  • Home loan

  • Car loan

  • Two wheeler loan

  • Education loan

  • Loan against insurance schemes

  • Loan against fixed deposits

But taking loan from the bank also have disadvantage too, so now in I am sharing you the disadvantage of bank loan.


Disadvantage of bank loan:

  1. The main disadvantage of bank loan is “interest”. Borrower have to pay high rate of interest to the bank. Sometime interest exceeds the amount of loan.

Rate of interest is depends on many factors like:

  • Bank to bank: Every bank advance loans in different rate of interest, but as per RBI guideline every bank has only maintain CRR, SLR etc. so that bank can pay their liabilities.

  • RBI guideline: RBI is the head of all banks, all the function and regulation of all such bank is maintained by the RBI. So it means rate of interest is also maintained by the RBI.

  • Fiscal policy

  • Monetary policy

  • Utility of money (MU)

  • Bank rate

  • SLR

  • CRR


  1. The secondary disadvantage of bank loan is “collateral security ”.It means borrower have to give some security to the bank in terms of ASSET, and the amount of security must be higher than the amount of loan. So basically who don’t have any collateral security can’t take loan from the bank and if you take loan from bank in behalf of collateral security can also give risk to your assets sometime.

  2. Procedure of taking Loan from bank is so long, difficult and complex. Its very difficult and complex to getting loan from bank for Uneducated person and illiterate poor farmers because bank loan needs too much paper work. Bank also delay the time of giving loan. So that’s why farmers and uneducated people take loans from zammidars, maldaars, traders, etc.

  1. If you want to purchase something and you are taking loan for that the cost of that thing becomes higher than their original cost like people purchasing some asset in EMI (equated monthly installment). So asset with EMI will make the cost higher than it is. So, basically taking loan from bank for purchasing an asset is a disadvantage of bank loan.


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