Loans may put you in debt, but sometimes they are crucial to your financial future. The average adult is likely to apply for a car loan, a mortgage, a business loan, and maybe a personal loan. Regardless of your plans, there are four things to consider before applying for any type of loan.
4 Things To Consider When Applying for Loans photo by @omaromar
Your Credit Score
The most basic aspect of your loan credibility is your credit score. Probably the first thing that prospective creditors look, your credit score reflects your ability and likeliness to pay back your debt. A healthy credit score will reward you in many ways, including quality loans from respectable banks. Not to mention how easy credit score maintenance can be, there is no reason not to be proud of your credit score when applying for the loan you need.
Your Total Income
How much you can afford to borrow depends on your take home income. You wouldn’t want to overextend yourself by borrowing too much, plus that’s bad business practice for the bank or private lender. The loan officer’s job is to compare all of your expenses against you net income, plus take into consideration other basic costs of living. Lending is a business, and they only take on new candidates if they are sure they will get a return on their investment, in the form of interest.
The Interest Rate
Interest rate is how banks, lenders, and credit companies earn a profit from donating money to your life. It’s possible to get lower interest rates (or occasionally interest free) on loans with your high credit score, which is important because at the end of the day, interest is what causes people to go bankrupt. Some financing companies charge over 23 percent interest on personal loans, so be sure to compare rates before signing on. Shopping around could pay off in the long run, although be aware that credit report requests can possibly affect your score.
Monthly Payment Obligations
Often times, new loans will be deferred a month or two, depending on the size and type of loan you’ve been approved for. After accepting the responsibility of the debt, take the time to know all the terms of your contract. “Interest Free for 12 Months” is a common hook, but those companies aren’t going to babysit you. Know how much you need to pay and when, because only you can take care of your payments. Make sure you can afford them, and be diligent with them.