Before applying for a loan, there are things which you need to consider; this is because loans comes with all different shapes and sizes.
You need to research and find out what loan options are available and what lenders need from you.
(a) Understand the different loans options available:
- Personal loans: this loan is in two categories;
secured loan – lender will require an asset as collateral and may be granted to individuals with poor or no credit history.
and unsecured loans – loans based on credit scores; no collateral is necessary.
- Business loans– this includes:
Term loans: General purpose loans that are paid back over a set period of time.
Short-term loans: Smaller loans that are taken for periods of less than one year and paid back in one lump sum.
Equipment financing: Loans granted for purchasing equipment; equipment is used as collateral.
Lines of credit: Specific loan amounts are granted per year on an as-needed basis; these loans usually need to be repaid quickly.
- Student loans. Student loans may be obtained through private lending institutions and banks.
- Mortgages – Offered as either fixed-rate (interest rate is set and will not change over the course of the loans), and variable-rate (interest rates may change based on the flux of the market).
(b). Interest Rates – pay attention to the current interest rates before you decide on the type of loan you need to take. This consideration will play an important role in deciding the total amount of the loan that must be paid back.Shop around for the best possible interest rate. Make sure you understand the loan fees and terms used and also ensure that there are no hidden fees included in the rate, such as:
- Origination fees
- Appraisal fees
- Underwriting fees
- Administration fees
- Credit report fees
- Processing fees
(c). Length of Loan – this will determine you total loan cost, this is because different loans are set up in different ways, and since there are so many loan lengths, it is best to discuss your options with a bank or financial institution. Some lenders will charge you an extra fee, called a prepayment penalty, if you pay off a loan early.
If you do obtain a loan with the hopes of paying the amount in full prior to the due date, be sure to inquire about any prepayment penalties you may be charged.
(d). Down Payment Amount – Not all loas requires downpayment, but osme loans like home loans, car loans will require you to pay downpayment. Other lenders will use your asset as collateral and therefore they wont ask you for down payment. Down payment reduces your monthly repayment too
(e). 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.
If you do decide that you need to borrow money, check your current credit score to ensure that you will be approved for the best possible loan.