In life, there are only a few things we have control over and boy does life like to throw curve balls and unplanned situations our way! Very often, one moment you’re feeling comfortable and everyday is going as planned, or at least, without any emergencies. The next moment, you’re faced with some high-ticket expense you wouldn’t have seen even with the Hubble Telescope.
Without an emergency fund tucked away somewhere, one can quickly become disorganized and confused as to how to raise funds to handle the emergency. Sometimes, friends and family come through for us while other times, it’s left for us to figure it out. When the latter is the case, the next option, something many people have found to be a lifesaver, is taking out a personal loan.
Now, some people cringe at the at the thought of taking out a loan. It often feels like you’re voluntarily giving away your chances of gaining financial freedom. Truth be told, some people have taken out loans which completely destroyed their finances. However, unfortunate cases like this mostly only happen when proper planning wasn’t done before approaching a lender.
Taking out an advance can be tricky and taking your time to go through the fine print is extremely important if you don’t want any surprises once the deal has been finalized. Yes, we know that most people apply for loans when they are in dire need of it, but signing with the first loan provider you find may not be very wise. Set aside ample time for research and evaluate the different options that apply to your current situation or need.
As you probably know, there are different types of personal loans to choose from, including home improvement, auto, wedding, medical, student, and debt consolidation loans. In this article, we’ll be exploring what you should do before and after securing a loan.
Documents You Should Have Before Applying for Loan
There are a few documents and information that you want to have handy before even approaching any lender. Having all the required documents makes your application much faster so that you get your funds as quickly as possible.
Most lenders will ask for the following:
- A valid means of personal identification, such as your Social Security card, driver’s license, or passport.
- Proof of income, such as filed tax returns, W-2s, or paystubs.
- Information about your employer, including the company name, your supervisor or manager’s name and contact information.
- Proof of residence, such as your lease agreement, for example, or a utility bill with your name and address.
Some lenders may ask for other pieces of information as these institutions often have varying application process and required documents. However, if you shop around for the best deals, which you should absolutely do, you’ll find that the four pieces of information we’ve just listed are a constant.
Must Do’s When Taking Out a Loan
If after carefully evaluating your situation, you come to a conclusion that a personal loan is the only option, these are some of the things that you must do to increase your chances of success and ensure you get the best offer.
Go Over Your Numbers
The worst thing you can do to your finances is to get into debt that you can’t get out of; it’s a really terrible place to be in. As we mentioned earlier, most people who fall into this hole didn’t do their research and plan the entire process out. While lenders will carry out their own due diligence to ensure that a borrower can repay the debt, it is wise that you go over the numbers yourself to be sure it’ll work out.
The most basic thing, of course, is articulating exactly how much you need to solve the current emergency. It is important that you keep in mind the fact that some lenders charge an origination fee which is usually deducted from the principal of the loan. So, imagine that you need a total of $50,000 for a new car. If the lender deducts an origination fee of 1% from that sum, you’d be short by $500.
Ensure, you ask the lender if they charge an origination fee and borrow enough so that you have what you need after the deduction. Finally, play around with loan calculators to find out how much you would likely be paying every month. Now, because you’re not sure of a lender’s rates, what you’ll be getting are basically estimates which may be inaccurate. However, you do get a rough idea of what your monthly payments will look like and help you decide if you can afford it.
Look at Your Credit Score
Again, your lender will take a look at this as well but you should do it before applying because you lose points for every hard check that is run on your credit. Once the lender receives your loan application, the first thing they do is run a credit check. This will help assess the risk factor involved in lending you the money. This hard inquiry shows up on your credit report and can affect your credit rating. Click here to learn more about hard credit checks.
On the other hand, no harm is done when you check your credit score or credit report. To qualify for personal loan, a borrower must have at least a fair credit which is between 580 and 669. When you have this information, you know whether you stand a chance of getting your application approved or not. We should mention that you can get loans even with low credit, however, these loans will most likely have higher interest rates and terms that would not be worth it.
Explore Your Options
Depending on the lender, you may or may not need a co-signer to get your application approved. If your lender doesn’t allow co-signers, you may be offered a secured loan instead of an unsecured one. In case you’re wondering what secured and unsecured loans are, here’s a quick break down.
These advances require collateral, such as a house, a vehicle, or cash in a savings account. They are called “secured” because the lender is securing their funds with the collateral that is being made available by the borrower.
Because lenders have a way to recover funds if a borrower defaults, approval for loan applications is faster. If the borrower defaults, the lender simply liquidates the collateral. Lenders may offer this option to borrowers with low credit because their risk is reduced thanks to the collateral.
These advances are “unsecured” as they do not require collateral. As a result, most lenders will only approve applications from individuals with a healthy credit score as they are more likely to repay their debt.
Secured Vs Unsecured Loans
|Secured Loans||Unsecured Loans|
|Approval is faster and more likely||Approval may be slow and not likely|
|Cheaper interest rates||Interest rates are usually higher, especially with credit cards|
|Amounts are larger thanks to collateral||Credits are usually in smaller amounts|
Furthermore, you want to think about which lenders to approach. You have two options, traditional banks or online lenders. If you have a low credit score, for example, you may have a hard time getting approved for a loan from a bank. Many online lenders on the other hand, specialize in working with low-credit borrowers. Visit https://billigeforbrukslån.no to learn more.
Pick a Suitable Loan
Earlier we mentioned that there are different types of loans to choose from that apply to different situations. Debt consolidation loans, for example, are used to pay off existing debts. So, as the name implies, you’re consolidating all your debt into one. You basically take out one loan to pay off all the debts you have, be it credit card debt, mortgage, whatever. Now, instead of making multiple monthly payments which may be difficult to keep up with, you’ll be making just one monthly payment.
There are also home improvement advances which are a great option of you’re looking to embark on an expensive home renovation project without having to borrow against your home. Other types of advances are student, auto, wedding loans, and so on. Simply apply for the advance that is directed at your situation.
Shop Around for the Best Deals
There are tons of lenders out there offering different deals, some bad, some good, and some great. You should shop around for those great deals. If it isn’t a life or death type of emergency, you might want to take your time to find a deal you’ll be happy with.
Don’t be afraid to visit different lenders and ask about their offers and all that’s involved in their loan application process. Find out whether they charge origination fees, if they do, how much, interest rates, special offers, and so on. Take all their offers, compare them, and decide which makes the most sense for you.
Some lenders offer a prequalification process which involves a soft credit check that doesn’t affect your credit score. This is a great way to gauge the chances of your application being approved. This is important because the more credit inquiry you have on your record, the less attractive you are to lenders.