Applying for a loan is serious business, so you should know what you’re doing before you start. When your finances are at stake, you should be careful with how you use your money and how often you ask lenders for assistance. Sometimes, just the act of acting can harm your credit score.
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We’ve covered how you can apply for a loan safely through several tips below, six in total. If you’re here, you may be new to getting a loan. If that’s the case, you should learn how to apply after reading our tips and making sure that getting a loan is the right path for you.
Do You Need It?
Before applying for your loan, you should ask if you even need it. For most people, you shouldn’t take out a loan if you don’t really need it. No matter how much planning you can do, taking out a loan is a risk that should be taken when you need financing, not when you want to make unnecessary purchases that are beyond your means.
Sometimes you can borrow from friends or family too, as long as you can pay them back and your relationship with them is strong enough to tackle money issues. In those cases, there won’t be any interest and the terms are much more favorable and flexible.
Have A Plan
You should have some idea of what the loan is paying for before you get it. This will depend on which loans you get since personal loans, both secured and unsecured can be spent on virtually anything. An auto loan, however, is related to your car. Similarly, the SBA offers government-backed loans that have stipulations baked into them.
Entrepreneurs who take out business loans have to spend the money on assets that contribute to the business, like machinery, stock, or other forms of equipment. If you need a loan with a specific purpose, you may be able to find one that offers the perfect terms and conditions. Along with secured and unsecured personal loans and the equipment financing we’ve mentioned above, you can get short-term and term loans, and lines of credit.
Check Your Credit
Everybody who can borrow money is assigned a credit score that essentially communicates trustworthiness. If a borrower has a good credit score then they make a habit of paying debts off in time and practicing generally good financial discipline. This helps secure loans in the future that are larger, longer, and accrue fewer interest expenses. If a borrower has a bad credit score then this indicates untrustworthiness and a poor financial record.
With that in mind, you should check your own credit score. It will affect your ability to borrow and set the terms of your future loan. If you have bad credit, you can be denied by lenders outright if they don’t think you can pay up. Sometimes they’ll ask for collateral, properties you own that can be repossessed if you don’t make payments.
Interest rates apply to pretty much every loan out there. The amount of interest determines how much you need to pay back when all is said and done. Competition in the finance sector means that banks and other institutions are vying for your attention, offering lower fees.
Watch out for origination fees, appraisal fees, underwriting fees, admin fees, processing fees, and credit report fees. These can sneak up on new borrowers, so check your monthly payment details to make sure you aren’t paying more than you expected to when you agreed.
If additional fees are applied, they should be deducted from the sum of money awarded to you for the loan, not from your own wallet after the fact. Some scams with lesser-known “lenders” will ask for the fees upfront and may run away with your cash, which is why exercising caution and sticking with a business you trust is so important.
If you’ve decided that you do need a loan and you have the credit to get it done, you’ll want to shop around for the best deals. There are a wide variety of lenders out there, many of them specializing in certain loan types. Even once you’ve found a lender you trust, they can offer multiple loans that will all differ on repayment costs, length of the loan, and interest rates. By keeping your options open, you can find the best loan that will be easy for you to pay off, making the whole process stress-free.
When soliciting a lender, you should do it properly to increase your chance of being accepted and being awarded financing. First, double-check any application fields or paperwork where you’ve filled out your details before you send them away. Any administrative error could slow down the process or even lead to rejection. Some errors may even be considered lies; in which case, many lenders will blacklist you.
You should take time crafting the perfect application instead of firing out multiple at once. Why is this? Whenever a credit bureau or other entities perform a hard check on behalf of the lender, it is documented as part of your credit history. This means that the lenders can see it and, if they see multiple solicitations from different lenders, then you look desperate and it seems that you’re not great at managing your finances. Repeated attempts at getting a loan can even harm your credit score.
Try to wait for a minimum of six months between loan applications. By then the impact of hard credit checks has largely subsided, so they won’t do too much harm to your credit score and potential lenders won’t find them suspicious.