Loan applications are a tricky business. Loan applications result in contracts from the respected financial aid firm. These contracts consist of various terms and conditions which should be read thoroughly for better understanding. If not fulfilled can result in minor to major consequences, in the form of fees and penalties and property confiscation by the organization. Following are some of the basic things you should know before applying for a first personal loan.
The first thing to keep in mind before your first loan application is your credit score. A great credit score will allow the loan-giving organization to make sure that you can complete your payments on time. If your credit score is good enough, then the lenders might give you a loan on flexible and favorable terms. It will, in turn, make it easier for you to meet your monthly installments on time.
You may qualify for secured line of credit or HELOC if you have been employed by the firm you work for a minimum of four months and earn a stable income. Most lenders like to see a two-year work history on your application, not required within the same firm. The organization might contact your current firm and ensure your employment status before lending you the loan.
Your Income to Debt Ratio
Another aspect before applying for your first personal loan is to analyze your income to debt-ratio. It is only favorable If you apply for a loan that is not more than half of your income amount. If you take a loan that has a monthly installment of 3/4th of your income, then you might not be able to meet your expenses and utilities on time. Most loaning establishments measure your income to debt ratio. If It’s more than what you can pay for in the monthly installment, then you might get rejected for the loan.
Assets and Collateral
There are some types of loans that require assets or some sort of collateral at the back end like a car or some sort of property, for you to be able to afford the loan. These are also termed secured loans. A credit score of more than 700 can qualify you for a home equity loan of up to 80% of the value of your home. This big of a loan can be
earned for a big investment or to pay off a prior mortgage. If you cannot pay off these big loans then the lending organization has the right to confiscate the assets that you got your loan against in a certain period of time.
Another important thing to know before applying for a loan is to know the interest rates that the organization is taking against giving you the specific loan. A high-interest rate loan would be difficult to pay off in the long run and cost you more money. Some companies can have interest rates as high as up to 7% of the monthly loan.
Choice of Financial/ Loan Giving Organization
Choosing a loaning organization or bank is very important because every organization has different rules when it comes to repayment. Some establishments have very high-interest rates with the payment of monthly installments. While the other lending institutes have strict payment dates and show no flexibility to late payments. You should choose a banking platform that allows a reasonable interest rate and some flexible terms regarding repayment collections.
While applying for a loan you should read through the terms before finalizing the loan with the establishment because some of them do not have adjustable repayment durations. As a result, you get hit by late fees and penalties frequently. So to save yourself from the hassle, you should know the terms of returning payment times. A flexible grace period of 15 up to 20 days should be made for late payments.
Hidden charges are something you should know as these affect your loaned amounts in the longer run. Some loan establishments have hidden charges in their monthly payments such as penal interest, processing fees, and cancellation charges. These add up to a huge sum of money which is difficult to pay when you have to meet your monthly expenses. It’s better to try to navigate them before making an agreement.
Loans can benefit a person in the shorter run but in a long run, these can be a cause a lot of mental and financial pressure If not paid in due time. Always look through your credit scores and interest rates of the organization you are benefitting the loan from, before applying for it. You should always be vigilant and quick in paying off your loans and taxes. And If you fail to do so you should know the consequences of these actions and solutions to these problems.