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Have you ever been in a situation where you took out a loan, but the money you took out still wasn’t enough? Maybe you want to borrow more? Sadly, you can’t do that. The moment you signed the paperwork or the contract, then it’s set. You’d have to take out another loan in order to get new finance.
That is why it’s very important to do your research and plan things through before even applying for a loan because taking one out is a huge financial decision. When planning on taking out a loan, here’s what you need to do to evaluate and ask yourself.
Why do you need the Money?
This is the most crucial factor that you need to consider when taking out a loan – what are you going to use the money for. That way, you can never borrow too much and have a hard time repaying the loan or borrow too little where your funds aren’t enough to cover the costs and you’ll end up getting another loan.
There are things that you can do to avoid getting into this situation in the first place. Have emergency funds ready. Your car broke down? Emergency medical expenses? Or any emergency, you won’t have to take out a loan to deal with the problem, instead take out from your savings and replace it when the problem is solved.
But data shows that 69% of Americans doesn’t even have a $1000 saving, so it’s understandable that most people turn to loans when in need.
How much can you Afford
Now that you know that getting a loan is the best course of action, it’s time for you to think about how much can you afford and pay back with interest.
Being able to cover the monthly payment doesn’t necessarily mean that you can afford the loan. Take into account the interest rate and the term of the payment when looking for a loan. Compare APRs and TAR or the total amount repayable. It’s the principal amount plus the interest that you’ll end up paying over the course of your loan. It can be calculated best if you have a fixed interest rate, but it can get tricky when you have variable one. So be wary when comparing loans.
After evaluating yourself and that you can afford that loan that you’re going to take out. It’s time to see if you qualify for that loan or not. Most lenders base your credibility on your credit score.
Your credit score and history are what’s going to lift you up and your financial well-being as the higher your score gets; the better options you are presented.
It’s important to know where you stand on your credit ratings. Any major credit reporting agencies will give you a free credit report annually such as Equifax, Experian, and TransUnion.
Terms of the Loan
Before signing anything, make sure that you fully know what you’re getting into. Double check on the terms and APRs of the loan, and check if there are any fees that will be charged of you.
The most common type of fees is:
Origination Fee – This fee is what lenders charge you for processing the loan. It’s most prevalent on personal, auto, and mortgages. It can also be seen elsewhere; it all depends on the lender.
Failed Payment Fee – A lender may charge you a fee if the check you issued bounces, or to cover for a failed payment when your account has nothing in it.
Prepayment Penalty – Lenders will charge you this fee if you try to pay off your loan early. This is to ensure that lenders will get gain something from the loan. A prepayment penalty is prevalent among personal loans with long payment terms.
Late Payment Fee – This will not only hurt your credit score but your pockets as well. Some lenders are strict and will charge you this fee if you are a day late in your payments.
Taking out a loan can’t be taken lightly and must be planned thoroughly when planning on taking out one. Arm yourself with the knowledge as to avoid putting yourself in a tough financial situation.
Choosing the right lender can be the difference between being buried in debt and in having a good financial standing.
Applying for a loan is easy if you have all the necessary requirements to avail of one. In a nutshell, applying for a loan simply involves the following steps:
Find a lender
Lending companies abound nowadays, and there’s a lender for just about any specific need you can imagine. While a lot of people think that lending companies are very strict when it comes to who is able to get a loan, they’d be surprised to find out that there are lending companies who’ve become more lax with regards to their regulations. Whether you have an excellent credit score, or zero credit score to boast of, somewhere out there is a lender that will cater to your needs.
Meet the requirements
While things like your social security number, current ID, proof of employment, and statement of income may be required by a large bulk of lenders, some will only ask for your I. D. These, and other pertinent should be readied beforehand, to make the process of obtaining a loan easier.
If you do not want to go through the conventional route of obtaining a loan, or for some reason are incapable of availing of conventional loans due to a low or non-existent credit score, you should ready some collateral. Whether it’s a car, your house, or anything of value that surpasses the value of your loan – all of these can be used as a form of ‘security’ so you can avail of a loan.
Getting a loan is becoming simpler as time goes by, especially since there is a growing and still rising demand for easily accessible emergency funds for those who need it. Do your research and choose wisely.