There are many reasons for choosing to take out a loan and some of them are more sensible than others. Most of us have a loan or two and certainly, those of us who own our homes will more than likely have a mortgage and then there is our car. Sensibly used, a loan can enhance the quality of our lives and give us things that we would not be able to afford otherwise.
Loans are used by students to help them through university, business owners access loans for various reasons and we often need a loan for essential purchases or essential and urgent services. As a society, loans have very much become a part of what we do but care has to be taken not to overload that burden.
Some people do that and find themselves in difficult circumstances, unable to access future borrowing. Once you have decided that you want to take out a loan and once you have considered how much you can afford and how much you need to borrow, it may be worth looking at the two main loan types to see which would be the most suitable for you.
A secured loan is commonly used to purchase a house or a car and an unsecured loan usually for personal reasons but you can access a secured loan by offering an item of security to the lender, in which case the lender will use it as leverage should you fail to make payments on your loan. You will be then wanting the best possible deal, so how would you go about getting that?
Your Credit History
When you apply for a loan, your lender will ask you to produce several items of documentation and they will also ask your permission to check your credit file. This is one of the most important checks that your lender will make and everything will have to be in order for them to be prepared to lend.
There are several providers who hold information about your financial transactions and lenders and credit card companies report your transactions to them. Every city or state has different providers and sometimes several. Not all companies report to all providers and not all lenders check with the same provider.
It is important that you check to see what information is being held against your name as you want to make sure that it is accurate. A lender is looking for a financial history that is sound and is showing that payments to previous loans have been met on time and that credit card balances have been kept up to date.
If you have defaulted on previous loans, you could find it difficult to obtain credit, or your cost to obtain credit will be more expensive compared with someone who has an unblemished record. You may want to take advantage of tidying everything up and close old credit cards down.
Old cards show up with a credit limit and the lender may decide that you have access to too much credit already. If you have a partner or a spouse with whom you have a bank account for example and they have a poor credit history, this could impact on your ability to obtain a loan.
So, if your credit file is not in the best of places, then there are steps that you could take to make it look more attractive to a lender and it may very well pay to do that before applying for a loan, but very important to make sure that all of the information is in fact accurate.
We are bombarded with ads on TV, online and on social media offering us loans and they are not always offering us the best of what we could get if we took time to shop around and come up with our own deal. Shopping around means asking friends, families, neighbors and anyone else that you can think of.
Loans are commonly used now and it could be that someone knows of a company who are offering a special rate at the moment. You can go online too and have a look at what the providers are offering there. You should be looking to achieve the best possible rate that you can and so you need to look beyond the banner headlines.
The rate that is advertised may not apply to every borrower and it may not apply to you, so check with the lender before making an application. Each time you make an application to a lender, they will carry out a credit check and if you are applying to several lenders in the hope of getting the best possible deal, that is not a sensible way to go.
Every credit check that is made impacts on your file and leaves a mark known as a ‘footprint’ and if you have too many of them, the score that is attached to your credit file could be affected. So, a better way would be to speak to the lender to ascertain the rate they would offer you and use an online calculator to work out your payments based on that rate.
Only make an application to the lender for the loan that you intend to take. If you are looking to access that loan quickly. You may also want to speak to the lender to find out how long it will take them to give you a decision, this may influence the use of lenders and point you in the direction of the one that will be prepared to expedite the process for you. Quick Loans Online New Zealand is an example of a company offering competitive loans with a fast turnaround.
Don’t Be Too Loyal
It sounds like a strange thing to say because most of us have been brought up to think that loyalty is a good thing and it pays. In many walks of life and certainly in our personal circumstances with our families and friends, it does, but when it comes to finding a loan it does not. A lender will not favor loyalty necessarily, so your local bank may not be the best place to go nor may the place that you managed to get a good deal on a loan several years ago.
Of course, check your local outlet or your favored places but keep an open mind and be prepared to look elsewhere too. Lenders offer special rates at different times from each other to try to attract borrowers so by looking around, you could manage to save yourself some money each month.
Check The Term Of The Loan
In general, when you apply and take out a loan, you will be deciding how long you want the loan for, generally, it would be a number of years. The term of the loan will make a difference to your repayments so it is worth moving it around to see what difference it will make and whether by extending the loan for a year, it would help you financially.
The longer you take a loan out for, the more the interest is extended and the more you would end up paying in interest in the long run. Clearly it is better to have as short a term as possible in that it allows you to free yourself of finance and if your circumstances should change, you are free of fixed monthly payments but if it was going to be the difference between you struggling to afford the payments compared with easily managing the payments, you need to weigh up the possibilities.
Fix The Interest Rate
Fixing the rate of interest for your loan means that you are guaranteed to have the same payment each month for the duration of your loan so that if interest rates move about, you are protected. In the main, unsecured loans are given to you at a fixed rate of interest for the entire duration of the loan but it is worth checking the terms and conditions just to make sure.
For those of you accessing mortgage deals, it is certainly something to check as this type of secured loan can be taken on a variable rate as well as a fixed rate of interest. Sometimes the fixed rate products are only for a limited time period and incur a fee.
You would need to take out a new product every so many years over the term of your loan, so work out whether your variable rate would be better or whether it would be to your advantage to take out different products to fix your rate each time.
Check The Small Print
We hope that when we take out a loan, the unexpected does not happen, we stick to the payments and pay at the agreed time for the correct amount of time, our loan is paid off and we have a plus mark on our credit rating but unfortunately, things do happen and circumstances do change.
We may have got the best possible deal on our loan but what happens if we have a problem and it then costs us a lot of money to overcome the problem. Check for late charges, what would happen if you were unable to pay one month, would there be a late fee added to your loan and how late would you have to be for that to take effect?
What would happen in the event of you becoming unemployed and unable to make any further payments, would you be allowed a payment holiday or would the lender be able to come to an agreement with you?
Your circumstances may change in a really positive way and you may find that you have more money that you thought you were going to have and you then wanted to make early payment of the loan, how would that work and would there be any penalties associated with the early payment?
Payment Protection Insurance
We have all heard so much about payment protection insurance and it really does get a lot of bad press, but it has its uses too and PPI can be very useful for those who have jobs which are uncertain or not permanent. It was set up to cover your monthly payments should you be unable to make them due to you being ill or becoming unemployed.
It comes as an additional monthly cost to your loan and it pays to shop around for the best deal on PPI. You must first consider however whether or not it is something that you will require and do that by asking yourself what would happen if you became sick or couldn’t work, how would that impact on your ability to pay your loan?
For some, it would have devastating consequences and for others, they may have a partner who could help or some other means to sustain the payment. When taking out a loan, do not rush the process, even if your need is urgent, try to keep measured and do your best to achieve the best possible deal that you can.
Avoid overstretching yourself as a burdensome monthly payment can impact on your life to quite a degree, especially if it is over a considerable period of time. Look for a reliable lender and test their customer service department by giving it a call. How interested do they appear to be? Are they helpful and do they seem to be quite experienced?
Do you feel that they would be supportive to you in the long run and do you feel that you can depend on them to get back to you if they say they will? There is nothing worse than having to hold on to the other end of the phone for what seems like an endless period of time every time you have a small inquiry.
Finally, remember a loan is a big commitment and you have signed documentation agreeing to make certain payments at a certain time of the month. Defaulting on your loan agreement can have very difficult consequences for you, so think carefully and only take on what you can afford.
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