Be an aware borrower while applying for a personal loan
There are times when we feel the need to apply for a loan at some point in our lives. If you are applying for a personal loan, you may not know the complete processor may not be aware of the formalities required.
There are chances, too, that your loan application may get rejected. Hence, you should have a proper understanding of the whole process to get the required amount.
You can always work on your rejection reasons and again apply for a loan. However, there are some common reasons for loan rejection: poor credit history, any error in your loan application or seeking an unrealistic amount, etc.
In most cases, the problem can be managed by procuring basic knowledge about the loan process. However, it is essential to address your problem to be eligible for loan approval.
Steps to Apply for a Personal Loan
Applying for a loan is not an expensive deal. However, you have to take care of few things to be eligible for it. Here are few basic steps to guide you on how to apply for a loan.
Decide on the amount to be borrowed
The first step for a loan process involved deciding on the amount that needs to be borrowed. Next, you have to analyze your situation by asking yourself the amount of money you need and its reason.
Along with the amount, it is also important to be clear of your payback capacity and the duration that you want to pay back the loan amount.
This clarity will help you get the best deal from the market and help you compare different loan rates with different lenders.
Know your credit history
Credit history is one of the key factors that help you get the required loan amount. It determines your paying capacity and also the interest rate that you are eligible for on your loan.
Having a high credit score will benefit you as it will facilitate getting a lower interest rate on your loan.
If you are seen as a high-risk borrower, there are high chances that you will offer a high interest rate. High APR’s are usually provided to individuals who have a low credit score.
Before applying for a loan, check your credit score thoroughly and ensure to have zero mistakes; otherwise, they may affect your score.
Once you have applied for a loan, still there are chances to improve your credit score.
Be aware and make a comparison between different loan options
Comparison helps you analyze the pros and cons of various loan options.
Similarly, when applying for a loan or any financial product, you should compare all the loans available with the lenders, their interest rates, and payback terms and conditions. By comparison, you will be able to find the best deal for you.
Do not compare with all the loan options. Instead, find out the top 8 loans available and then make a comparison.
Compare the APR quoted to you as it includes the total cost of the loan, including the principal amount, interest rate and (if) any other cost. After comparing, look out for the loan option that offers you the best rate and payback terms.
It is advisable to go through the application criteria before initiating the process, as there may be different criteria for different individuals.
There are many loans available such as secured loans, unsecured loans, 1000 pound loans, debt consolidation loans etc.
Do not depend on the loyalty factor
You may have a bank that you depend on for every transaction. Obviously, while applying for a loan, you may want to go for the bank that you have an account with and are loyal to for years.
The bank also knows you a customer, and here is familiarity involved. But, in the case of a loan, that loyalty may not always get you with the best deal.
Many lenders are new to the market and are trying to attract new customers. You can approach such lenders that are looking out for buyers.
Since they are new to the market, they may offer you a lower APR than other existing lenders. Therefore, it is said to compare and shop around before applying for any loan.
Importance of loan term
The payback timeline is one of the important aspects of the loan process. If you are offered a loan, the lender will always focus on the payback terms and conditions.
The payback term is directly proportional to the interest rate. Therefore, the longer the payback duration, the more interest rate you will pay in totality.
The monthly payments come down to lower amounts in case of longer payback duration. Hence, it is a choice between the longer payback term and finishing off your loan fast by paying larger amounts in a shorter duration.
Fixing the interest rate
The lenders fix the interest rate before handing over the loan amount and fix the amount for your monthly payments.
This implies that even if there is an increase in the market interest rate, the interest rate will remain the same on your loan amount. It will remain unchanged.
It acts as beneficial for you as it helps you creating your monthly budget and following a fixed monthly routine. The interest rates are fixed, but you may read the document carefully before approving it.
Say no to payday loans
Payday loans are a tempting option for every borrower. However, if you are in urgent need of funds, these payday loans can act as a savior for you.
Payday loans are easily available, and the loan amount is transferred to you within 24 hours of applying for the loan. You do not have to maintain a good credit score as these loans are available to individuals with bad credit as well.
Payday loans involve lucrative features, but it is still advisable to not go for the payday loan option. This is because high interest rates are applied in such loans and may trap you in a debt quagmire.
As compared to other loans, you end up paying much more times than the actual amount. Hence, you should avoid payday loans irrespective of any emergency.
Alternative loan options
Instead of opting for a loan, you can consider making a purchase with your credit card that offers inters free purchases. This is feasible only when you are looking for small amounts.
In the case of huge amounts, the credit card option doesn’t seem favourable. On the other hand, in the case of small amounts, loans may involve higher interest rates.
Go for the option of 0% interest card purchase. This proves to be a cost-effective option in the case of smaller amounts.
To ensure no backlog is there in your payments, link your current account to your debit account. This will automate your paying process and ease off your financial burden too.
Do not opt for automatic PPI
A PPI (Payment Protection Insurance) on your loan is a reassurance that if you cannot pay back the loan due to an income loss, you will cover the loan payments.
Before opting for PPI on your loan, make sure to do a survey of the market and opt for the best deal available.