Sunday, January 16, 2022

The Top Things You Should Do Before Taking the Next Loan

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How are you reviewing loan providers, and how do you find the right one? 

Loans are financial aids availed by anyone in need of money against security or varying interest rates for various reasons namely, personal reasons, for studies, buying a house, a car or to fund their business. Depending on the requirement of the individual, they may choose to select the most appropriate one. 

Although loans act as a gear to bring the financial condition of an individual on track, you need to manage them well. Look at going for one if you need funds for things like starting a new business, need a car to commute and can’t bear the expenses of buying a vehicle.

In the U.S., for instance, there are over 44 million student borrowers who have dues of over $1.5 trillion.

These numbers reflect the grieving state of financial dependency of the public on the lenders. Many of these people, fail to repay back the amount borrowed, on time or succumb under the pressure of higher interest rates for late payment of premiums. Therefore, it becomes imperative to think it through, research well and arrive at a conclusion. You may need to ask yourself a few questions before availing your next loan.

Is my credit score strong enough to fetch me a loan?

Before you decide which lender are you going to approach, it is advisable to first check on your credit score on any of the websites offering this service for free. Your promptness in paying your credit card bills, if you have ever taken a loan before have you paid all your monthly premiums on time, depending on whether you are applying for a personal or business loan, your salary certificate or business bank certificates are few criteria determining your credit score.

With a higher credit score,, you are more likely to get a loan than with a lower score. Many banks/lenders have a minimum credit score requirement which has to be satisfied in order to avail a loan. Your credit score will also determine the principle amount of your loan and the annual percentage rates (APR).

Which lender best suits my needs?

You would definitely not want your loan to become a liability for you in the future. Thus, before you zero-into your final choice ensure to research well. You may seek to advise from professional credit consultants, acquaintances, government portals or websites that specialize in financial advisory support. 

Certain points need to be kept in mind at this step are to find how reliable the lending source is, what is the financial institution’s market rating, terms of mortgage and repayment, annual percentage rate (APR), duration for which loan is granted and in an event of default what would be the penalties imposed.

How would I benefit from the chosen policy?

Once you have listed all your lending options, do a mathematical analysis of the benefit the loan could render. There is no point availing a loan and not being able to put it to best use or ending up paying a lot more each month from your pocket.

Many people fail to plan their finances and see the bigger picture before deciding to apply for a loan and later struggle more than before borrowing. For example, you shouldn’t go for a car loan just simply because you want to own a car. Look at whether you can afford to pay the monthly installments of the loan with your current earnings and other financial commitments; you are sure to fall deeper into the debt pit.

What will be the paperwork required?

Regardless of the loan you apply for, a few documents are required to process the loan. Borrowers usually don’t pay much thought to this step and later face difficulties. It is common occurence for the financial institution to reject an application or delay the process due to improper documentation submitted.

A basic document checklist is provided below.

  • Personal ID proof
  • Credit score certificate
  • Salary/business statement certificate
  • Guarantee/Mortgage documents (In case of personal loan savings account may be the guarantee or guarantor could be family or friend who could sign stating in case of default, they would repay the loan; property document in case of a home loan; vehicle registration certificate in case of a car loan)
  • Tax filings, wherever appropriate.

Bearing these points in mind before applying for your next loan might ease your difficulties in the future.

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