10 Factors To Consider Before Applying For A Loan. There comes a time when one needs a personal loan. It can either be from a bank, a loan shark or an individual. Whatever the case we need to stop and think hard before making an agreement.
1. The Type Of Loan
Before applying for a loan think about what you want to use the loan for. There are lots of different types of loans in the market, henceforth it’s important to choose a loan that suits your situation and what you intend to use it for.
2. Current Financial Situation
The most important factor in deciding whether to borrow money is you. Looking at monthly and yearly budgets may help you understand just how much you can afford to make in loan payments, thus helping you decide on a loan amount.
3. Credit History
The finest rates are available to those with the good credit history. As a result of capping of interest rates, most banks are anxious about lending for risk of default. Beforehand you should check your acknowledgment score in order to know the likely prospects of getting the loan certified.
4. Interest Rate
Even if this is one of the most important details governing our decisions, you should not be blinded by faulty advertising. A lower interest rate is a good thing; but it also means that the repayments will carry on over a longer period of time. If the interest rate is reasonable compared to the loan term, then go ahead and sign those papers.
5. Loan Term
A lot of loans have fixed terms, usually 15, 20, 25 or at most 30 years. Some lenders will enable you to change the term, if they think you can pay the whole debt off within half the time. But this may not be an option that lenders will willingly offer. Ask your bank if they offer opportunities to pay them back earlier or later, and how the change will affect your interest rate as well as monthly payments.
6. How You Plan To Pay It Off
This seems like an obvious point but it’s important to plan out how you intend to repay the debt. Will you be paying weekly, fortnightly or monthly? Do you plan to pay it off sooner than the term? These key factors will help you choose the right loan to ensure that you avoid any unnecessary costs.
7. Penalty Charges
Refusal to repay the loan is a reality we all face. In case you are not able to pay your dues on time, there is normally a very weighty penalty indicted on your credit account.
8. Down Payment Amount
The amount of money that you put down depends on the financial institution granting the loan. Although not all loans require down payments (usually home equity loans use the house as collateral so no down payment is necessary), you may benefit by putting some money down on your mortgage or auto loan.
9. Hidden Charges
Make sure you read the fine print before finalizing a deal. There might be charges you are not aware of, especially for home equity mortgages. Find out about things like early repayment fees, arrangement charges and the like.
10. Don’t Bite More Than You Can Chew
The principal rule of clever borrowing is what the older generation has been telling us all the time: don’t live beyond your means. Take a loan that you can easily repay.