Applying For A Loan: What You Need To Consider
There are many reasons why you may be considering a loan. Whether it’s due to unexpected circumstances or simply to get you through to your next payday, there are some essential questions to consider. No matter if it’s to help pay for a wedding or holiday, or to help pay for emergency home improvements, a loan can be a lifeline that can improve your quality of life.
Preparing yourself for a loan application can take time, and you will need to consider some essential facts about loan types and eligibility. Applying for a loan can be confusing, so here are the key things that you need to remember.
Know What You Need
Your first step should always be to work out exactly how much money you need to borrow. Sit down with a pen and paper, or use a spreadsheet if that’s easier. Look at how much you can personally contribute to the purchase that you’re making, and evaluate how much extra you will need.
If you’re seeking a loan due to an event like the wedding of your dreams or a holiday of a lifetime, always consider the fact that there may be unexpected costs that you may need to factor in. When it comes to loans, it can often be a good idea to borrow a little more than you expect to need.
Can You Pay Your Loan Back?
Possibly the most important question to ask yourself when contemplating a loan is whether or not you can afford to borrow. Loans are all about convenience, and they allow you to buy what you need, but you will be paying for that convenience.
Look at your living costs and factor in any existing standing orders or payment plans that you already have in place.
Loans are not going to be free, and you will pay back more than you borrowed. Make sure that you have a very clear understanding of just how much you are going to be expected to pay back and for how long. If you take out a loan and you default on a payment, then you may end up owing more than you expected.
It’s a good idea before making a loan application to check your credit score. Many lenders will not loan money to those with a bad credit history, especially when these are combined with any existing CCJs or records of payment defaults.
The stronger your credit score, the better terms you will be able to get on your loan.
However, there are companies that will accept loan applications from borrowers with bad credit scores, so it may be worth shopping around if you find that your credit history is not as strong as you thought.
Too Many Applications
You should always pay close attention to the number of loan applications that you make. Every time that you apply for a loan, you leave evidence of that application that will be included on your credit score.
When you make a loan application, the number of failed loan applications you have made will be a red flag to many lenders. They will assume that you are either in financial difficulties or are unable to manage your money, and they will be more likely to turn down your loan request.
Understand Interest and Fees
Some loan types will mean that you have to keep an awareness of the current interest rates. These can change, and depending on your lender they can fluctuate quite wildly. This will have an effect on your repayments, so make sure that you fully understand the interest rates of your lender so that you know what to expect.
You will also need to look at the fees that will be included in your repayment terms. Some of these can be a surprise if you’re not expecting them, and could affect your ability to repay what you owe.
Find out more about interest and how it is calculated by clicking here.
The amount that you pay back on your loan will not just be determined by the total that you borrow and the interest rates. The expected length of the loan will also play a factor in determining the total amount that you pay back.
Due to the fact that there are different types of loan available, there will be different terms and conditions regarding the duration period of your loan.
Although it’s often assumed that paying back a loan early will result in lower costs, many lenders will include an early completion fee which can sometimes result in paying back more than you expected. Like interests rates, it’s important that you understand as much as you can about the period of time that you have to repay what you have borrowed, and if your lender will be charging you a fee if you find that you can repay in full earlier than you expected.
Secured Loans: The Risks
Although you will usually find that a secured loan offers cheaper repayment terms than an unsecured loan, you do need to be wary. Secured loans are those that use something that you own as security in case you are unable to pay back the amount that you have borrowed. Usually, this is your home, but it can also include vehicles or even your business. The reason why you should be more wary of agreeing to a secured loan is that if you find that you are unable to repay when expected, you could lose your home, your car, or your company. Learn about the differences between a secured and unsecured loan before making a final decision on the best option for you. Make sure that you understand the risks before agreeing to a secured loan, and make a decision based on your financial situation.
Loans can be a quick and convenient way of getting what you need. Whether that’s making it through till payday or something much more extravagant, always learn as much as possible about the process before agreeing to a loan. Always check the fine print and know as much about your lender as they do about you. The more that you know about what to expect from the loan applications process, the easier it will be to find the ideal loan that ticks all of your boxes.