Applying for a loan is an important decision for any individual from the age you start pursuing your professional education to when you are in the process of making your own house and settling in. Loans may be an excellent way to finance such projects, but they come at a dreadful price other than the basic amount you have to pay back: the interest rate. The higher the interest rate, the more you will lose from your income just for the sake of financing your loan.
This article will highlight the main aspects you should check for before applying for a loan, so that it does not become a lifetime burden on you.
- The Interest Rate
This is by far the most important catch to consider in the case of loans. If you are an employee of the financial institution you are applying for a loan from, chances are that the interest rate will be lesser than for other clients, so this is an ideal situation.
In other cases, you will need to search a lot before you arrive at a decision from where to borrow. Your financial history goes a long way in determining how trustworthy you are to a creditor.
- Loan Security
Securing your loan through assets is a common way institutions measure your intention and propensity to take and pay back the loan you are taking. Most firms will ask for security in the form of an asset in case you are unable to pay back the loan, because in the unfortunate event of bankruptcy, unemployment, or death, the institution does not want to lose its money.
- Present Income
You need to be aware of the reliability of the sources of income through which you are managing your finances presently. This is important because if these sources are not able to meet the demands and satisfaction of your creditor, your chances of getting the loan amount you are looking for will be very slim.
Do not apply for loans with unrealistic aims such as cutting down essential spending, because the pressure on you and your family will likely be disastrous.
- Credit Score
Institutions are keen to check your credit score as a rough estimate of how worthy you are in terms of your ability to pay back, so thoroughly review your annual report and make sure you cut any loose ends such as verdicts of unlawful practices or payment defaults.
This information can be found on your credit report, so it is advised to regularly request for your report and review it.
- Managing Finances
After being credited with your amount, the pressure of repayment will rise every day, and even a delay of one day in your payment of installation can cause the institution to monitor your finances and develop low trust in you.
With a loan, especially when the servicing amount is not cut at source, it is a good practice to make sure you separate out your payment at the start of each month.