Hi im with RBS and am thinking of applying for a loan of £1000
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A loan is a way to get money now if you can reasonably assure you will pay off that money (and some interest) in the future.
Banks like loans because they profit from interests, but they still want to know that you’ll pay back.
So the way it usually works is, you go the bank, ask for a loan, present some kind of proof you have enough money and you will probably have enough money in the future (like payslips), and if they accept they give you a loan of, say, 1000 GBP you have to pay back in 5 years with a 2% interest. Usually, larger loans (like, 100,000 GBP or more to buy a house) require more rigorous proofs because more money is at stake. As a side effect, banks usually take some time to evaluate your situation, which means you cannot usually get a loan the same day you need it.
The main risk is, if you don’t have enough money in the future to pay back, the bank can sue you and try to get something anyway, maybe taking something off your wage straight away, and your credit score will drop.
Another risk, especially for larger loans, is related to interest rates. Some loans have a variable interest rate, which essentially depends on current inflation. If you have a variable interest rate loan and inflation hikes up your interest rates go up and you have to pay more money as interest. This becomes more significant when buying a house or other very expensive items, because you often end up paying a significant part of your income every month to pay back the loan (including interests).
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