A loan application can be a daunting task for anyone since there are qualifications that one has to meet, the strenuous application process, and the difficulty in identifying the right moneylender. If this is your first loan, then you will probably be intimidated by the process, but luckily, here is a breakdown of the essential steps that you have to go through to get a loan.
Assess Your Credit Performance
For a bank to offer you a loan, whether it’s a mortgage or a debt consolidation loan, you need to have an excellent credit score. The score is a measuring scale that most financial institutions use to gauge whether or not you are reliable in loan repayments. With a good credit score, you stand a better chance of receiving a loan. However, if you have a low credit score you should consider checking whether the report has errors, minimize using that credit card, and ensure that in the future, you promptly repay your loans, to improve your credit score.
Decide On How Much Loan You Need
You will have to keep in mind that the amount you receive as a loan isn’t free money and that soon, you are legally obligated to repay the amount with interest. You risk spoiling your credit score if you fail to pay or when you delay in settling the monthly installments.
It’s therefore advisable to go for a loan amount that you can quickly settle. You will need to determine the amount that you can afford and to achieve this; you calculate your debt service coverage ratio. The ratio will enable you to evaluate the amount that you will have to pay and how much savings you will make if you settled for a loan from a different lender.
Decide On The Right Loan
The type of loan you decide to apply for depends on how you intend to use the money. There are several types of loans; student loans, personal loans, business loans, Expat loans, payday loans, renovation loans, wedding loans, emergency loans, among other loans. With some lenders, you can take a loan that doesn’t suit your needs. Such a move will be ideal if the loan has a lower interest rate.
Pick The Right Lender
Now that you have all the necessary documents, you will have to search for a perfect lender. Some lenders specialize in a particular type of loan; therefore, the type of loan will determine the lender that you pick. Credit unions and money lenders are an excellent start, but ensure that you analyze interest rates before settling for a lender.
Besides, try and identify licensed loan institutions to avoid future problems. With this licensed money lender, you will have flexible terms, fast access to cash, you can consolidate your debts and maintain your credibility. Also, try and avoid predatory lenders whose intention is to offer you high loans that you can’t manage.
Prepare All Necessary Documents
Once you have decided on the type of loan to apply, you will need to gather documents that are necessary for a successful application. If you are a first-time applicant, the chances are high that your lender will ask for more documents depending on the type of loan you intend to apply. Some of the general documents necessary for a loan application include a collateral proof, your resume, business license, income statement, your credit score, tax return report, statement of purpose, and your identification details.
Once you have calculated the monthly installments, analyzed competitor interest rates, and you have the necessary documents, you are ready to make a formal loan application. The application process is the most straightforward task since all you have to do is approach the lending agency then inform them that you intend to apply for a loan. They will issue an application form that you should fill in your details. If you have a low credit score, you should consider finding a co-signer who has a better credit score.
Wait For Lender-Approval
Once you have filled the application form and submitted it, you will need to be patient and wait for their approval. If the lender approves your loan, you can proceed and collect the loan. However, the lender might decide to deny the loan. Some possible loan denial reasons include a poor employment record, a low income to debt ratio, or if you have a bad credit report. If the lender denies you credit, follow up on the reasons why they rejected your credit and make necessary amends.
As earlier stated, the loan application process can be tedious, especially if this is your first time. However, if the lender offers you a loan, ensure that you honor the terms of the agreement and settle the loan as fast as you can. Remember that your loan keeps accruing interest; therefore, it’s in your best interest to pay the loan sooner.
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