Sometimes, to jumpstart your dreams, you might need to take a loan. But the process of it is not very simple, and any mistake that you make could cost you a lot.
If you really need to get a loan, here is a list of questions you need to have an answer to.
What type of loan do you need?
First of all, you need to determine exactly what you will do with the loan. Do not take a loan before you know where every penny of it will go. Some of the typical loan types are those that are meant to be there so you can buy a house, a vehicle, start a business, or to pay for your education. Of course, these are not all the loans that exist, so you might need to check on the type you actually need. This is important because you may get a loan that was not designed specifically for your needs.
Where will you borrow?
Just like with buying clothes, try to “shop around,” check any place that offers the type of loan you need and try to get the best deal. Depending on the loan, you might have difficulties finding a perfect place. Many places either don’t offer student loans or have appalling rates. Also, don’t forget that you can always borrow online. In this regard, remember to verify the website as trustworthy.
On the other hand, you could also borrow from a friend or a family member. This might help you, but try to always put it in writing to be on the same page. You don’t want to lose friends and probably get sued for not returning the money.
And lastly, for this question, avoid predatory lenders. We know that if you have been rejected too many times, it is very easy to take a bad loan, but it is almost never worth it. Payday loans are known to be inescapable holes you dig yourself into for a relatively small loan.
What is your “Credit”?
In layman’s terms, your credit represents the faith the bank has in you regarding the payment of your loan. It is appraised based on your lending history and how good you were at repaying loans. One might think that those who never borrowed money have good credits, but that “one” would be wrong. A very small number of lenders will give you a substantial loan if you don’t have a good repayment history. Sometimes, it is even preferred to borrow money so that you can repay it and build your credit. Do you want to check your credit? It’s very simple since every credit reporting agency offers one report per year free of charge.
How does your loan work?
Before you sign the papers, investigate and try to find out how that loan exactly works. Do you plan to repay it in one go, or do you want to set up monthly payments? How much will the interest cost you? It is very important to know exactly what your obligations will be once you sign for that loan. Take out your trusty calculator and get to work. You will see how much you will have to pay for that loan, or how using a different loan could cost you less. There are multiple websites that can help you with this. Also, it is very important to crunch the numbers and find out what percentage of your income will go to paying your loan. That is called a debt to income ratio, and you need to keep that number as low as possible.
How do you apply for a loan?
You have picked the best kind and found the best lender. You have a good credit, and the numbers seem favorable, so it is time to take out a loan. This one is very straightforward. Go to your lender and apply. Depending on your lender you will have to answer some questions. Most commonly, the questions will be about what you want to use it for, how do you plan on returning it, what are your general finances and some personal questions. You will also be required to provide an address and your Social Security Number (or equivalent).