Applying for any type of loan can be nerve-racking. The night before going for a meeting with a potential lender is enough to keep you awake for hours on end. It’s understandable why, after all, most loans are taken out for a reason – something you want to buy, a house or car perhaps, or the dreaded debt cycle: paying off one debt with another. Whatever it is, it’s sure to be important to you, and that’s why the application process can be an anxious one.
The best way to counter these feelings is to maximise your chances for success by taking into consideration 5 key things when applying for a loan.
The Type of Loan: Have you been looking for a loan and been overwhelmed by the number of options on offer? You’re not the first, and you certainly won’t be the last. The reason loans are not “standard” is that different financial situations call for different remedies. Depending on what you need a loan for, and the other four points we will discuss below, these will determine what type of loan is right for you. The chances are that you will have more than one option available to you, so it is important that you start off by assuring that the loan you are applying for will truly help your situation.
The Consequences: One of the most important ways to assess a loan is to factor in the consequences. It’s all too easy to focus on the money and how it will help you, but you must also take into account what will happen to your finances should you take out a loan, and what will happen if you are unable to pay it back. Consider whether a secured or unsecured loan is right for you. With a secured loan you will probably get lower interest rates, but you could lose your asset if you struggle to make payments in the future.
Credit History: When applying for a loan, a good credit history isn’t essential, but it can really help. In order to have a good credit history, you have to have already paid something back, so if you have had a bank loan, credit card, mobile phone, car insurance, etc. and have been paying any of these back regularly, then you will have a good credit rating. If you have a bad credit score, make sure from now on you make your payments on time. If you don’t have any, take out a credit card with a higher APR – some companies offer these to people with poor credit scores – and then buy something small with it and pay it back promptly. This will positively affect your credit score, as will a mobile phone contract, even a SIM only contract at just $10 a month will help you.
Savings: Remember the golden rule, savings are less important than debt. If you have a debt, use your savings to wipe it out as quickly as possible. That being said, if you can afford it, some savings really can help if you are applying for a loan, as it shows the lender you are fiscally responsible and you are not currently living outwith your means. This can set a potential lender’s mind at ease.
Proof of Income: Most lenders will ask for proof of income. This is easier said that done depending on your situation. If you are unemployed or on any kind of benefits payment scheme, then this will be your income. If you are fully employed by a company, then you will need a written reference from your employer. If you are self-employed, then you will need to either have signed off accounts from an accountant, or you could just provide bank statements to show your income if you have been self-employed for less than a year and haven’t done your taxes yet. The important thing is to ensure that there is a record of you having money. Make sure you put your money into a bank account, as this will go greatly in your favour.
Applying for a loan needn’t be a nervous experience, take these five aspects into consideration and you should be able to find the loan which is right for you.