10 Major Questions to Ask Yourself before Applying for a Loan |
Posted: October 7, 2016 |
Individuals and companies acquire loans for different reasons such as refinancing debt, purchasing expensive inventory, starting a new venture, etc. But it’s important some take some major considerations into account to know which type of loan fits best with your need. Let’s see some crucial questions you need to ask yourself and the bank before applying for a loan. 1.Your Credit Score? Your credit score is important as it affects your chances of securing a loan and how much it would cost you in the future. If you have a low credit score, try to improve it before applying. Credit score can most commonly be improved by paying off some debts, making timely payments, removing incorrect information form the credit report, etc. 2.Is this Loan Secured? To acquire some loans, you need to show some collateral. This means you are getting the loan in return of some security provided. In case you fail to pay off the loan, the bank will seize your assists. Examples of secured loans include car loans, mortgage loans, etc. Most personal loans are not secured, but it’s always better to ask for confirmation. 3.What is the Loan Application Process? Ask relevant questions such as how long will it take for the loan application to get approved, what is the process and requirements, and till when the bank will pay you the money. 4.What Do I Need to Acquire the Loan? In some cases, showing your credit score and income is just enough to qualify for the loan. While in some instances the loan provider may also ask you for copies of tax returns and bank statements to further verify how much you make and what assets you have in your possession. 5.What is the Application Fee? Borrower may need to pay some fee in order to apply for a loan. This upfront cost is particularly useful when you come across different loans from different lenders as it helps you in deciding the best deals and prepare the fee amount in advance. 6.What is the Interest Rate? Your interest rate is often stated in term of annual percentage rate (APR). The rate determines how much you will be charged for borrowing the money and the total amount you will be needed to pay back. The interest rate is proportional to the amount you will pay eventually. Student and mortgage loans usually have low interest rates ranging from 4 to 6%. While credit cards offer high interest rates at 10% or more and around 27% in some cases. Personal loans have rates lying somewhat in between the mortgage and credit card rates, depending on your credit score too. 7.The Repayment Period? The repayment period is the time within which you have to pay back the loan amount. In shorter periods, the monthly installments are generally higher as you have less time to pay off the complete amount. While a longer time period calls for low monthly payments. But do note in longer time periods you will be required to pay interest along with a high overall cost of loan. 8.Any Penalty for Pre-Payment? If somewhat you able to earn some nice money and are willing to pay off the loan faster than the decided repayment period, the case may not be as simple as it seems. Some lenders do change a penalty for a pre-payment move. Therefore it is better to acquire knowledge of such limitations beforehand and try to avoid loans that does not appreciate pre-payments. 9.Am I Bound to What Use I Put the Money To? Loans for car, mortgage, educational purposes, etc. comes with restrictions to the use you will put the loan money for. However, most personal loans are not bound by such limitations leaving you free to use the funds in any way you want. Always ask the lender if he is likely to enforce any such limitations. 10.What If I Go Default? In case of undergoing through worse situations such as going bankrupt, default, etc. by whatever reasons, you will obviously want to know if there are any penalties of late payments or non-payments associated.
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