Taking out a loan is a popular way to purchase items and services that we cannot afford right at the moment. Loans can be used for emergency situations like car repairs or problems in and around the home, medical bills, vet bills and so on and they can be used in more pleasurable circumstances. People also use loans to purchase their homes, to buy their cars, to go on holiday or to consolidate their existing debts. There are so many needs and uses for loans.
Loans are widely available and all we have to do is turn on the TV and we are not short of ads from various loan providers. We look online or in social media and the story is the same; there are plenty of companies wanting to offer us money. It is easy to be tempted and encouraged to borrow and maybe having a loan is the only thing you can do but in other circumstances, it may not be the right thing to do at that moment. Loans can be quickly and easily obtained now. This article will detail everything that you need to know prior to making your final decision.
Can You Afford a Loan?
You must first decide whether or not you could actually afford to take a loan out. There are loan calculators online and if you have a look around, you will find some interest rates that you can work with. Do not use the smallest rate that you can find. That may not apply to you, so use a small, middle and larger rate over the time frame that you were thinking about. You can adjust the time frame to see how much of a difference that will make to your monthly payment. That will give you ballpark figures as to the cost per month that you could face.
The next step would be to work out and total all of the money that you commonly spend each month. That will include all of your bills, credit card bills included and any other expenditures to and from work, trips away, lunches, dinners out, etc. All of that has to be included; be as realistic with yourself as you can be. There is a temptation, especially if your purchase is for pleasure purposes, to ‘forget’ to include some of the expenses. This will only lead to difficulty in the long run. Either you will be refused the loan amount or you will not be able to afford the payments.
What About Your Circumstances?
This is a step that is often forgotten. You may be earning a wonderful salary at the moment and all is well but if your position is only going to last another 6 months and your loan is planned for 3 years, there could be an issue for continued payments. You cannot just hope that another job will come along. It might, but it might not. If your circumstances are likely to be changing in any kind of significant way, you should consider carefully because once you have signed a contract for a loan, you cannot go back and renegotiate the terms and conditions. You are stuck with the payments for the entire duration, so as much as is possible, try to work out your plans and ideas over the duration of the loan.
Which Loan?
You will generally have a choice of loan types. If you are buying a house or a car, you will automatically be given what is known as a secured loan type and that means the lender is holding your car or your house as collateral for the loan and if you do not make your payments, the lender can take your house or car and have it sold to recoup his / her losses. If the purchase is not going to involve such an asset, you can still take out a secured loan by offering one of your own assets as collateral. This can be a popular way to take out a loan as a lender feels much more reassured and interest rates can sometimes be a bit more favourable. An unsecured loan is when you present yourself to the lender asking to borrow money and you have no collateral that you wish to offer as security. The lender can only make decisions based on the information that you provide about yourself and the checks that he/she can make.
Decide
Once you have completed all of your own deliberations, you should have an idea of how much you can afford and the type of loan that you are likely to want to take out and over how long.
Application
In order to apply for any loan, you will be asked to complete an application process. If you are wanting to have your loan quickly, you will want to choose a lender who is committed to that process with you. Such a lender would offer the possibility of making an online application and would be committed to looking at your application that day and giving you a decision. The application itself is usually a fairly simple process, or at least it should be. It will ask you for personal details and details of the amount that you wish to borrow. Of course, the loan would not be able to go ahead until they have checked all of your paperwork. At least knowing that you would be accepted if things are as you say they are makes a difference, especially if your loan is urgent in its nature.
Once the decision to accept you is made, you will be asked to produce a number of items: a photographic ID which could be a passport or driving license, a utility bill, bank statements, and your paychecks. One very important step that lenders will take is that they will require your permission to check your credit file. This company can provide quick loans and are worth checking out.
Credit Check
This can be the deciding factor for lenders. It is all very well for you to tell a lender that you are not a great risk and that you promise to keep all of your payments up to date. Lenders need evidence of this, or at least as much evidence as they can obtain. Your credit file adds to the information that you have already supplied and it will give the lender access to all of your financial transactions, history of your payments for previous loans, credit card balances, and who else has been accessing your file. It essentially has a record of everything and everyone that you have interacted with financially.
When a lender makes a check on your file, other lenders know that they have done that; the check leaves what is known as a ‘footprint’. If a lender sees that there are a lot of footprints, that could show up as a red flag. You may have a lot of borrowing already, or you may have been refused credit on a number of occasions; the lender may question this. Importantly, your credit file will show your available credit and credit card balances. If your credit card balances are high, this could potentially be a red flag for the lender. He/she would need to see that your income would be sufficient to take care of that debt and also make payments to the loan.
There are different companies who hold your financial data on file. They assess all of your circumstances and score you according to their criteria; this is known as your credit score. Each company will have their own individual way of working.and each ‘agency’ may have slightly different information as not all lenders report to every agency.
Prepare
If you are planning a loan, it is a bit like spring cleaning. Tidy up your accounts and financial dealings so that your circumstances are clear for the lender to understand. Your bank accounts should be in credit each month so as not to show that you are living beyond your means and it pays not to max out your credit cards. Take time to check your own credit file which you can do quite easily. Note, however, that depending on where you are in the world, you may have to check with the different agencies as not all credit agencies hold the same information. You may not know which one your lender is going to carry out the check with, so check with all of them. It is a good idea to do this from time to time anyway to make sure that there is no erroneous information on file relating to your circumstances.Time taken to prepare can be time well spent as it can make the difference between you being accepted for a loan and being turned down.
Pick Your Lender
Your choice of lender is going to be important. First of all, your lender should be entirely trustworthy so that there are no misunderstandings and if there are, you want a lender who will care enough to want to work with you to sort them out. Often family members or friends can advise on a suitable lender or failing that, you will have access to a number of contacts on social media.
Sometimes people are happy with a search through the search engines and while they are doing that, can have a look at the rates that are on offer. Talk to the lender if you are not sure; this can be a good way to check out their customer services department. It lets you assess how quickly they respond to your call and how efficiently they do that. If they cannot respond quickly and efficiently to a sales call, then it doesn’t show a great deal of promise for the after-sales service, which you would hope would be good. So, take time with this step and choose a lender that you are comfortable with as well as a lender that will offer you competitive rates of interest.
After the Loan
Once you have signed all of the paperwork, you should be left with a direct debit payment to manage each month and that should be the end of it. Make your payments and fulfill the terms of your contract with the lender. All too often, the unexpected happens and people run into financial difficulties. It is very important that you do not just choose to ignore the problem. It is not going to go away by itself. You have to address it and the quicker you do that, the better the chance of resolution.
A lender can only help you solve the problems if you are prepared to tell them about the problems and then put an offer to them about how you could manage your future payments. They should be able to negotiate with you to find a mutually satisfying agreement. After all, it is in the interest of both parties. If you ignore the problem and the outstanding amount builds up, then it can lead to some difficult consequences for you. If you have taken out a secured loan, the lender is within his/her rights to remove the asset from you. For both a secured and unsecured loan, this default will more than likely be entered into your credit file, preventing the way for future borrowing for you. So, correct any problems straightaway to avoid any of the nasty consequences.
Summary
Before choosing any loan or product, assess your reasons for choosing a loan. Assess also your affordability and confirm the stability of your circumstances. If it is a quick loan that you are looking for, check the turnaround time with any lenders that you have found to be suitable. Ask questions of the lender and prepare your documentation in advance by getting yourself organised. Check your credit file before applying and when you have your loan set up, remember to stick to your payment schedule, informing your lender of any changes in circumstances or difficulty in paying.
