Loans – I’m sure that most of us are already familiar with them at least to some extent. That’s when you borrow money from a bank, credit union, or some other type of financial institution. They charge you interest in the meantime, and at the end you end up paying back everything that you borrowed plus whatever the additional fees turned out to be.
Where it gets tricky for a lot of folks, though, is the application process itself. There’s a lot involved, and without the proper preparation, you might end up swamped in paperwork for weeks on end. It’s pretty annoying, honestly, and there’s good reason that people try to avoid it.
However, there are ways to prepare yourself adequately for the loan application process. I’ll be doing my best to speak generally for all of the different types here, but do keep in mind that when you get into some of the specific ones, certain aspects might look different.
Step One: Why do You Need a Loan?
I know, I know – this seems totally obvious, right? However, I think it’s a pretty darn important part of this whole process. Before you start applying, or even gathering your information beforehand, you really need to have a firm action plan for what you’d be spending the money on.
Ideally, you’re not thinking up reasons as an excuse to take out a loan, but instead you already have an idea, and it could be expediated or aided somehow by borrowing money. An example of that might be that you’re looking to renovate your home to make it more accessible for a family member. This is already something that you’re planning to do, but it could certainly be helped along by taking out a private loan.
Another might be that you’re looking to consolidate some of (or all of) the other debts that you’ve incurred. Say you wanted to refinance but it didn’t exactly work out – you can consolidate by taking out another loan and “buying out” the other debts that you’ve got. These are just a few examples of many, though.
Step Two: Consider Your Credit History
Before you look at lenders or take any other steps, it’s probably not a bad idea to look at your credit history first. You can find some good info on this page, https://consumer.gov/credit-loans-debt/your-credit-history, if you’re not familiar with the phrase. In essence, it’s just the record of all previous credit agreements that you’ve had.
This includes bills that you’ve paid, rent, and more. All of it is tied up neatly into a three digit score that will play a huge part in whether or not you’ll get approved for a loan or not. There’s a sliding scale involved here, and most of the major companies track your score from four-hundred and fifty to eight-hundred and fifty.
On the lower end of things is when your score is considered “poor,” which reflects that you’ve missed payments several times or repeatedly gone over your credit limit. That signals to lenders that you may not be the most trustworthy person with money, which is why you’ll often end up saddled with higher interest rates or denied applications.
As far as middle of the road scores go, you unfortunately probably aren’t going to have much better luck. It’s a sort of neutral place to be and indicates that you probably don’t have much of a history in general. This makes some lenders leery, unfortunately.
For the higher scores, though, it tends to get you some “favoritism” in the word of credit agreements. It shows that you make your repayments on time and don’t miss any of them, either. They’re usually a lot more receptive to your applications this way, and you’ll get offered better interest rates than other consumers.
Step Three: Pick a Lender
While I wish this was as easy as drawing a name from a hat or even just picking the first one that we see, there’s a lot more nuance involved here (at least, there should be). After all, as a borrower, you’ve got a lot to consider when it comes to what financial institution that you want to work with. I know that some people are rather leery of online lenders, for example, so let’s take a moment to unpack the negative stereotype surrounding them.
To get an example of what they might look like in the first place, you can click here – there’s some valuable context involved. I think that for a lot of us, it’s just really been ingrained into our minds that you can’t trust everything that you see online. While this isn’t necessarily untrue, it’s also not fair to rule out all that we can find as a scam just because it’s on a digital platform.
There are plenty of lenders on the internet that are totally trustworthy – it’s up to you to determine whether or not you do work with them, though. If you’re ever feeling unsure about whether or not one that you’re considering is legit or not, you can always look up some of the customer reviews. This can offer some valuable insights.
Obviously, though, there are a few other things to keep in mind as you make your pick. For instance, it’s not a bad idea to compare the ones that you’re considering and see which might offer you the lowest interest rate (meaning that the loan will cost you less money over time). The customer service that they provide might be something else, but you’ll have to make the call there.
Step Four: Prepare Your Documentation
Each lender will have a different application process, but no matter what, you’re going to have to provide some personal documentation. Identifying papers are a big one (that could be a birth certificate, social security or national identification number, etc). Proof of income is another, since that’s going to be one of the ways that they decide whether or not you’ll be able to pay them back as promised.
Proof of your other monthly expenses might also be requested, as well as tax information. My advice? Just gather any paperwork that seems like it might fall into any of these categories and have it ready in case they ask for it. This can save you a lot of time once you actually start filling in the blanks on the application itself. Beyond time, though, it can also help prevent a headache.
Step Five: Fill Out Your Application
Obviously, next comes the part where you actually do put in your application. Like I said, what exactly is involved can depend both on the lender and on the type of loan that you’re going for. A mortgage one will probably look much different than a private one. Still, once you’ve crossed all of your t’s and dotted your i’s, it’s time for the waiting game.
Step Six: Figure Out the Contract
What happens once you do get approved for a loan? Well, that’s when you and your lender work together to create a contract. Now, if you’re not confident in your legal-ese or just want a second opinion, this might be the time to get a financial advisor involved. They can help you to read the contract over before you sign anything, just to ensure that you’re not getting ripped off or pushed into a corner with a bad deal.
Once you get that sorted out and you sign, then you can move on to spending the money on whatever you’ve agreed to do so on. With private loans, this is pretty flexible, so you’ll be the one calling the shots (for the most part).
So – there’s the guide on how to apply for a loan! I know it’s not entirely comprehensive, but I do hope that it can serve as a valuable resource nonetheless. As far as final notes go, there are a few that I have for you.
While it’s easy to brush off the repayment period and interest rates, I really can’t emphasize enough how important that they can be. Make sure that you pay attention to how long your loan is supposed to last, and remember that often lenders will charge you a fee for paying it off early. On top of that, interest rates will end up costing you a lot more than you might initially expect, so don’t be afraid to ask questions about the percentages that you are offered.
Additionally, remember to keep your options open during the selection process. Don’t count international options out – sometimes, they can be opportunities for a lower interest rate than you might get domestically. Also, they may not have credit requirements that are as strict as they are for your local lenders, so that’s a factor.
Really, loans get a bad reputation in our society. It’s kind of taboo to talk about debt, right? That’s lead to a lot of misinformation getting spread, and a lot of people not fully understanding what this process looks like. Hopefully you’ve found this guide helpful in those terms – while there are a ton of resources online about this topic, I’ve found that a lot of them are way too technical for me to understand without cracking out my dictionary and my thesaurus.
So long as you’re being responsible about your borrowing and have a plan of action when you take out a loan, you should be in good shape. Just make sure that you keep track of your monthly repayments, and if you are in danger of missing one, contact your lender as soon as possible.