How To Apply For A Loan With Fewer Headaches

Not sure how to get a loan? Before applying for a loan, decide if you really need one. Is it for a home repair you can’t go another day without? Is it for a loaner car because your daily driver just retired? Is it for college which you couldn’t otherwise pay for out of pocket?On the other hand, is it for a hot tub you just really want, or a new fancy car you just saw on television? Is the purpose for the loan a nice island vacation or a brand new bedroom furniture set?Think First! It’s recommended to get a loan for something which will either return you greater value, or something you truly need. If it is a luxury item, you’ll be better off just saving your cash and buying it outright in the long run. Not only do most purchases of luxury items tend to be more expensive than necessity items, but you’ll also throw on top a huge chunk of interest to pay off over time if you purchase with a loan, compounding the cost of your lush new buy.A loan is an agreement to borrow money, in exchange for repaying it with additional interest over a period of time. We are in a low interest environment now, but even a small percentage of interest can add up significantly over a long period of time. Interest rates can also be fixed for variable. Be sure to know the details before you sign a dotted line, as both fixed and variable have advantages and disadvantages.The loan term is the duration of time you plan to pay back the loan to the issuer. This can be a very short time if it’s a small personal loan, or it could be a very long time, such as a 30 year mortgage. Although the time period is stated, most loans can be paid back faster; this could save you a lot in interest as well!The loan principal is the actual amount the issuer is going to hand you when you sign for the loan. The principal is usually one of the key factors in applying for a loan, because the issuer will want to verify you have a need for the full principal.The first thing you’ll need to apply for a loan is some sort of document showing you income. Typically, a W-2 or a few months worth of paycheck stubs should do the trick. Employment history may also be important in this phase, depending on the size of the loan. If the borrower is a business, K-1′s, tax returns, 1099′s or other paperwork may be required.Next, an inventory of your assets will likely be accounted for. Items such as bank accounts, CD’s, 401(k) statements, stocks and mutual funds, cash value in life insurance, and other equities you might hold. These are usually additional proof you have what it takes to pay back the loan. Your assets are also sometimes eligible to be seized in the event you default on your loan.Your personal information is also required, such as driver’s license or passport, social security number, current and past residences, contact numbers, or any other information the issuer might need in order to keep on file if they needed to find you should you be in a default situation.Once you have applied for the loan, the issuer will more than likely run your credit score, verify your income, verify your assets, and begin taking your entire profile into account. If eligible, the issuer will write an agreement for you to sign, which will state the terms of the loan. This will include the agreed upon principal, eligible interest rate, fees to originate the loan, pay back policies, and other disclosures, rules and regulations applicable to the loan type applied for.Be sure to read everything as this stage of the process! If you don’t understand what something means, or you are unsure if something seems right, stop and ask questions! The last thing you want is to be bound to a loan you didn’t intend to be. There is always the human element as well, and there could be a simple mistake which could cost you down the road.Finally, after you have been accepted and have signed off the loan documents, it is now your responsibility to abide by the terms of the loan. First and foremost, be on time with you payments! Missed or late payments not only can affect your credit score for future loans, but incur fees and interest which compound against your loan amount. Late fees and penalties are a quick way to spiral your loan out of control, and cost you significantly more than you ever intended on paying.Also, if you do pay on time, the opposite is true! You credit score can improve as you make your payments, and you’re more likely to be given any amount of leeway down the stretch should you run into unexpected hardship.Be sure to monitor your loan regularly. Make sure you are taking advantage of the loan as best as possible. Some issuers allow you to get lower credit by auto-drafting your account and other lenders might be willing to lower your interest rate through a restructure or refinance. Whenever possible, make an extra payment or balloon payment to pay the loan down faster, as this will save you money in the long run. Loans can be a great help when used properly, but they can be a detriment if used irresponsibly.

This entry was posted in Uncategorized and tagged , , , , , , , , , , , , , , , , . Bookmark the permalink.