Read This Before Applying For A Loan

If your understanding of a loan is “fast cash”, you need to read this article.

Getting a loan sanctioned is easy if you know how, and so is the entire process of paying it back. But if you don’t know exactly what you’re doing when you get a loan, it could be the start of a very bleak chapter in your life – one riddled with debt for as long as you figure a way out of debt.

What type of Loan do you need?

There are a world of loan options out there – and taking the right loan on the right terms could be the difference between living a life or being trapped in debt.

Analyse your specific requirements – do you want a new car? A new house? To start a business? To fund a holiday? Whatever your requirement is, you can find a loan product that’s specifically designed to cater to it, or whose terms are more favourable to your specific need.

Taking a personal loan to buy a car is really dumb, as car loans designed for that purpose have lower interest rates (because of the

car being placed as collateral, usually, and the fact that personal loans are unsecured) and the literature in their documents will be more specifically beneficial to your specific case.

Take a look at your credit history every so often to see exactly where you stand.If you’re a first time borrower, chances are that you won’t get a high loan amount disbursed, but your performance on repaying this loan will have a huge impact on your credit score and future loans.

How good is your understanding of loan products?Taking out a loan is a big deal, and you need to be informed about all aspects of

the loan before you decide to borrow. Interest rates, tenures, loan amounts, credit scores, repayment options, etc. need to be thoroughly researched before jumping into bed with a bank.

You need to know all about tenures – how long do you need before you think you can effectively pay your loan back? Longer tenures mean you pay a little lesser each month, but also mean that the overall amount you pay will be higher than if you took a shorter loan tenure. Shorter tenures mean a little higher amount each month, but your loan will be cleared off faster.

So, consider the various types of loans:

Car loan.Home loan.Personal loan.Business loan.Mortgage loan.Education loan.

There are more customizable options, but you’ll need to talk to your bank representative to arrange it.

Where are you going to borrow from?

After deciding on which type of loan you need, you’ll need to decide where and who to borrow from. Most people stick with their favourite bank when taking a loan, or the last bank whose advertisement they saw. But almost every bank offers every type of loan product – and they’re tripping over themselves to give you the best deal right now.

Loans are how banks make money. They’re in competition with each other, and a little bit of shopping around could be hugely beneficial for you as a customer. Almost all banks lend at different interest rates depending on a number of factors, like:

Your creditworthiness – determined by reports from credit information bureaus and your borrowing history.

History with the bank – if you’ve had or operated an account of any kind with the bank you wish to borrow from.

Loan amount – most banks weigh the risk factor of lending to a specific party with the amount of money they’re putting up for loans, you could get a higher amount sanctioned at certain banks.

Interest rate – this is determined by your loan amount, tenure, credit worthiness and other factors. Again, the rate of interest varies between lenders, so a little research could go a long way in terms of overall savings.

Source – Banks aren’t the only places that give out loans. Depending on your requirement, you could approach other parties. For example, for a business loan, you could approach a venture capitalist or angel investor. For a home loan, the builders and contractors themselves have excellent tie ups with banks and can get you a really good deal. Student loans can be negotiated through Student Aid offices in schools and colleges.

Don’t be disheartened if a lot of banks reject your loan application – there’s always one around the corner. Tweak your application a little bit in order to seem more financially stable and able to repay.

What is your credit history all about?

There are companies out there that record and collate all the information about your borrowing history – that doesn’t just mean loans – if you’ve bought so much as a mobile phone or a TV set through a financing scheme, companies like Equifax and Experian will have details about it. They’ll know when you

bought the TV, how regularly you made payments (and if you delayed any payments), and whether you closed the transaction on the same terms on which you took it. Meaning that if you’ve even defaulted on one little payment to a bank in the past, it’s on record. All these details work towards creating a good or bad credit score. Your credit score is what banks and lenders look at to determine your credit-worthiness.

Once you’re done understanding the type of loan you want and the type of tenure, etc. you’re comfortable with, go on to the internet and find a good comparison website where you can see a bunch of different loan products tailor made for you, from different providers. You can compare interest rates, tenures, offers, etc. and choose the one that suits you best.

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