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5 Points to Know When Applying for A Loan

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Are you considering applying for a personal loan? While there is no reason why you shouldn’t, it is super important to understand specific instructions and information pertaining to personal loans. It is your duty, as a borrower, to educate yourself on all things personal loans. Similarly, a lender has to explain what sort of agreement they are getting into with a borrower. 

2022 is expensive. Even with the COVID-19 pandemic having almost dissipated, the costliness of living in these times remains pretty much intact. To avoid any financial penalties down the road, you must acquaint yourself with all pertinent information regarding your personal loan application.

While applying for a personal loan, you should consider important factors like interest rates, other charges, and your credit score. When you consider these criteria, you ensure what works best for you. You are enabled to control any mistakes you may have a penchant for making. Beware, also, of the wrong crowds of the lenders. These people may try to lull you with, perhaps, an inconvenient tenure or giving away more than you require so that they can charge hefty interest. You should also take into consideration the various factors that affect the chances of you getting a loan or the aftereffects of it you might be facing, like personal loans effect on taxes. This blog post will discuss 5 points to know when applying for a loan. 

1. Your Credit Score and Credit History

A good, squeaky clean credit score and history are a must-have. This shows your lenders and creditors that you are not a flight risk. It provides them a dual reassurance: you pay your bills on time and the second that it is safe to lend you money. The better your credit score, the better chances you have of being given a loan without a preamble. You get to choose your terms, too, with lenders should your credit rating be able to impress them. With your terms on the table, you can end up saving thousands of dollars in the long run. 

Let’s take an example. Suppose you choose, say, a loan with an interest rate of 6% and pay a monthly payment of $483 to cover a $25,000 loan over the period of five years. In that case, the total interest you will pay is only $3,999. With higher interest rates, ones that you have no choice but to accept, you pay a lot of interest. 

2. Your Income Streams

Your ability to pay off your loan lies in your income. How fast you will be able to pay your loan depends on the number of income streams you have. Your take-home pay will significantly impact your loan, so lenders will first and foremost ask you for proof of income. This will include bank statements, a salary letter from your employer, stubs, or W-2 forms, anything with which they can reassure themselves. However, suppose you are not an employed or salaried person. In that case, lenders will require tax returns for the last two years and bank statements to detect how income-able you are. 

If your take-home salary is not enough to cater to the monthly loans you are signing up for, make sure you include all of your sources of income. These additional sources could include your spouse’s income, child support, any second job you have going on, freelancing income, and others. 

3. Monthly Payments of Debt

An income can go only so far. Make sure you carefully observe the payment plan before taking a loan. With manageable monthly debt obligations, you are in for a seamless plan of paying off your loan. Let’s take an example here to better understand. Let’s suppose that you earn $5000 per month. Yet, the loan that you have taken on has a monthly installment of $4500. You are left with just $500, something not enough to handle your other expenses. Besides, if you are paying off 70% of your salary in loan repayment, you will not be able to pay off other loans, let alone save.

Creditors will, hence, require a list of any previous loans you may or may not be paying, like mortgage payments, rent, and any other existing payments for your debit and credit instruments – that is, your debit and credit cards. 

4. Assets and Co-Applicants

If you are applying for a joint loan, you will have to get some more information. In the case of personal assets, you will have to provide the creditor with proof that the investment in question is your own. You can present these as collateral, guaranteeing a loan. With collaterals, you qualify for lower interest rates. While the money coming in is worthwhile, you will lose your asset if you fail to make the payments at any cost.

In case of a joint loan, you will have to provide information for yourself and your partner. This will also include the social security number of both, serving as proof of income. With this partnership, loans come at a great advantage. If you have a bad credit score but your partner has a good one, the creditor will be willing to overlook yours. No matter what their credit score, both partners are equally responsible for chipping in and taking on.  

5. Your Employer’s Contact Info

Some creditors have trouble believing possible prospects. No matter how legit your provided information may be, they will ask you the one thing that can, for sure, verify all of your data. They will ask for your employer’s contact information. It is perfectly okay to provide them with this information as it will only aid you in the process. 

When applying for a loan, be sure to consider factors like your credit score rating, interest rates, and monthly payable installment amount. If filing for a joint loan, make sure you highlight each other’s financial health and accountability. Being given a loan is all about impressing your creditor; if your application is able to convince them of a swift payback period and responsible management of the entire monthly installment system, yours is the loan and all it has to offer. Use your learnings from here as you set out to apply for a loan.

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