Five things to keep in my mind before applying for a loan
Most of us have gone through the thought of acquiring a loan at some point in our lives. Be it a student loan, business loan, or a personal loan, we all have been there at some stage. Monetary assistance might just be our last resort in some cases. While applying for a loan might seem all fun and games to many, it’s important to acknowledge different aspects of the loan and its disposition.
Certain factors must be accounted for and taken into consideration as the terms that apply over various loans can certainly be deceiving. It could potentially lead to financial and budget constraints, in the long run, causing more problems to even begin with. However, it is equally important to note how loans could be serviceable if pros and cons are well assessed beforehand, and we could receive just the exact kind of reinforcement we require.
To sum it up, this article will give you a detailed idea of the factors you need to contemplate and comprehend before applying for a loan. This is especially important for the first-timers who are completely clueless about the characteristics of a loan. After you’ve reached the end of this article, be sure to reassess your decision. Determine whether or not the option of a loan is worthwhile as per your circumstance.
1. Loan types:
Here are a few of the many basic types of loans listed below.
- Business loan
Business loans are diverse and can be obtained as per your needs. These range from short term loans, to be paid back within a year in full amount, to equipment financing loans that allow you to pay for your plant and machinery, to even the best small business loans that are offered by banks and financial institutions.
- Unsecured and Secured personal loans
Personal loans could be unsecured loans, which in turn allow an individual to apply for a loan without putting collateral like valuable assets on the line for security deposit purposes. High-interest credit cards could help you to pay back the loan faster. Unsecured loans could offer lower interest rates compared to your credit card. Whereas, secured loans call for you to deposit an asset or a certificate for the sake of a deposit in case you’re not able to pay back the loan. Secured loans can be acquired at lower interest rates relatively.
- Home equity loan
A home equity loan is a kind of secured loan, where borrowers must deposit their home in exchange for a loan that typically values up to no more than 85% of the house’s value. Even though this kind of loan is offered at even lower interest rates, it may prove to be risky in case you default on your home equity loan.
- Student loan
Student loan assists students in coping with their student life expenditures including post-secondary education fees. This type of loan can be applied through federal aid depending on a country’s policy or even through private lending institutions.
2. Interest rates
Current interest rates must be taken into consideration before you apply for a loan as regardless of the loan you’re opting to acquire, you’ll still have monthly payment obligations. It’s best to shop around for banks and institutions offering lower interest rates but bear in mind there could be hidden fees included in the rate.
3. Deposits/Down Payment
There is always a risk when it comes to applying for a secured loan considering the fact of a security deposit involved. You could potentially permanently lose the down payment submitted or even the valuable asset deposited in case you are not able to pay back the loan in the given time frame. You may receive a better idea when you self examine your current financial status (see point 4).
4. Financial Status
It’s always a smart thing to assess your current financial status which will allow you to determine your capability to pay back the loan. Your monthly, yearly budget or performance will get you to understand whether or not you can afford the monthly payments related to the loan.
Another good thing to do would be to check your credit score to ensure you’re approved for the best and most suitable loan.
5. Confidential documents
Confidential documents and financial reports will be considered by the bank or lender; therefore the borrower needs to keep all necessary documents and employer information in handy. Your current and past employers might also be questioned for verification or reference purposes before the loan is approved and lent to you.
The Final WordIf in case you are unable to comprehend or deal with the cases listed above, maybe applying for a loan might not be your best option for now. However, there are always better financing opportunities out there that you could explore to provide yourself that much-needed monetary assistance.