Should You Turn to Your Bank First When You Need to Borrow?

If you need to borrow money, you will likely have lots of options when it comes to lenders that offer you that chance -- especially if you're a qualified borrower. This is true if you're getting a mortgage loan, as banks, online lenders, and credit unions typically offer home loans. It's also true if you're getting a personal loan, car loan, business loan, or most other kinds of loan products.

Chances are good you already have a relationship with a bank, though -- the one where you keep your checking account and perhaps your savings account. And it may be tempting to just borrow through that bank rather than dealing with finding a different one.

The big question, though, is whether that's actually a financially smart idea or not. And, in many cases, you may actually be better off looking elsewhere. Here's what you need to consider to help you decide.

Benefits of turning to your own bank

There are some good reasons to consider using your own bank for your borrowing needs.

Doing all your banking at one place can be convenient

If you already have a bank account with a financial institution, then you're familiar with your local branch, the customer service offered, and the products available. Going to that bank and getting a loan could feel simpler because you don't need to decide where else to look to borrow. It'll also be easy to set up autopay for your loan from a checking account with the same bank.

Your lender already knows you, so approval may be easier

In some cases, having an established relationship with the lender could make it more likely you'll be approved for the loan. Since you're an existing customer, the bank will be able to see your past habits.

You may qualify for loyalty discounts

In some cases, banks offer you discounted rates on other loans if you have a relationship with them already. For example, Bank of America offers $200 off mortgage origination fees for those who have at least $20,000 in a checking or brokerage account. That's a good amount of savings.

These benefits could potentially be enough to convince you that it's a good idea to borrow from your bank.

Potential downsides

There are also some huge downsides to consider, though. Here's some of the reasons why you may want a different lender.

Your bank may not offer the lowest rates

If you just default to borrowing with your existing bank, you may not be aware there are cheaper options out there. And that could cost you -- especially if you're borrowing a lot of money over time. Say, for example, your bank offered you a $240,000 30-year fixed rate mortgage at 7.00%, while there was an online lender out there offering 6.50%. If you went with your bank, your monthly payment for principal and interest over 30 years would be $1,597, while if you opted for the cheaper one, it would be just $1,517.

Your bank may not offer the best selection of financial products

Depending on what kind of loan you want, your bank may not offer you exactly what you need. For example, your bank may not offer FHA loans, which you may be interested in using to buy a home if you don't have a large down payment or good credit.

What's the right choice?

For many people, these downsides outweigh the upsides -- especially if borrowing would be costlier with your bank. The best course of action is usually to check what your bank offers but also look into what other lenders could do for you. If your bank has competitive terms, you may as well stick with it.

But if you can do better elsewhere, then don't pay more just for the convenience of keeping your loans and checking account at the same place. It's easy enough to manage multiple accounts online, and it's worth the effort if doing so can save you a lot of money.