Borrowing money can help you do some things, but the process can be complicated. Errors can be expensive and result in the rejection of your loan application. If you need a loan, find out what to expect and what you can do in advance.
Determine the type of loan you need
The first step is to determine what you need. The type of loan you will get will depend on what you plan to do with that money. Some types of current loans include:
In some cases, you do not have much choice – it is unlikely someone will buy you enough to buy a house unless you use a loan designed for that purpose. By using a loan that fits your needs, you will increase your chances of being approved and reduce your costs.
Decide where to borrow
Compare the prices. Again, your choices may be limited depending on the type of loan you want: some locations do not offer business loans or student loans. Start your search in the most reputable institutions for making affordable loans (for example, contact the student aid office at your school to get a loan before you go to the bank to get a private student loan) .
Banks and credit unions are a good place to buy most loans. Check with multiple institutions and compare interest rates and costs. Interloan loans and other sources of loan on the market should also be on your list. There are also several websites with access to multiple lenders. Borrowing online is perfectly secure as long as you stick to reliable sites.
Some people borrow from private lenders such as friends or family. While this may facilitate approval and reduce costs, this can also be problematic. Make sure you put everything in writing so that everyone is on the same page – money can ruin relationships, even if the amounts in euros are modest.
Avoid expensive loans and predatory lenders. It is tempting to take everything you can get when you have been denied repeatedly and you do not know how to get a loan. However, it is not worth it, they will lend you money, but you will find yourself in a difficult situation, if not impossible. Payday loans and call option leases are generally the most expensive options, and loan sharks can be quite dangerous.
There are other types of quick loans that can get you money fast without the three-digit APR payday loans. Some come from banks and credit unions, which can be safer than in-store payday lenders.
Understand your credit
You usually need a “credit” to get a loan. This means that you are used to borrowing and repaying loans. How to get a loan if you do not have credit? You have to start somewhere, which usually means you have to borrow less and pay more. Once you have developed a strong credit history, lenders will lend you more and offer you better rates.
You can view your credit for free – you receive one free report per year from the three major credit reporting agencies: Experian, TransUnion and Equifax. Browse your credit history to understand what lenders will see when you apply for a loan. Do you look like an attractive borrower? If there is not much in there, you may need to create credit by gradually adding loans to your story. Be sure to correct any errors in your credit files as they affect your chances of getting a good loan.
Understanding the loan
Before getting a loan, take a look at how it works. How will you repay it – monthly or at one time? What are the interest charges? Do you have to pay back in a certain way (the lender may ask you to pay electronically via your bank account)? Make sure you understand what you are going for and how everything will work before you borrow.
It is a good idea to make loan calculations before getting a loan. This allows you to see how much you will pay for the loan and how a different amount (or interest rate) can save you money. There are many online tools to help you calculate your borrowings. It is also wise to consult a depreciation schedule (whether you build it yourself or let a computer do it for you) to see how the loan will be repaid over time.
Get a loan that you can really manage – a loan that you can repay comfortably and that will not stop you from doing other important things (like saving for retirement or having a little fun). Determine how much of your income will be used to repay your loan – lenders call it a debt ratio – and borrow less if you do not like what you see. Lenders often want to see a ratio of less than 30% or more.
Apply for the loan
You are ready to get your loan once you have:
- Choose the best type of loan
- Shop the competition
- Improved your credit, and
- Run the numbers
At this point, you can contact your lender and apply. The process is easy to start: simply tell the lender that you want to borrow money and tell him what you will do with the funds (if necessary). They will explain the next steps and the duration of the process.
When you complete an application, you provide information about yourself and your finances. For example, you will need to have identification, an address and a social security number (or equivalent), as well as information about your income.
Go through the subscription
Once your application is submitted, the lender will evaluate you as a potential borrower. This process can be instantaneous or take a few weeks. For example, home loans take longer than credit card offers because they are more at stake. Mortgages require detailed documentation, such as bank statements and pay stubs to prove you are able to repay. You can make it easier by putting everything in order for several months before applying.
When you subscribe, lenders will use your credit (or simply use a credit score) and review your application. They may call you occasionally and ask you to clarify or prove something – it’s usually a good sign. When lenders ask for details, this means they take the subscription seriously and are more likely to offer competitive rates.
Business loans are similar to any other type of loan. Lenders are looking for the same basic things. However, new businesses do not have long loans (or loans). New businesses and service companies generally do not have assets that can be pledged as collateral. So they have to work a little harder to get loans.
In most cases, a person such as the owner of a business must use his personal credit and income to qualify for the loan. They may also have to pledge personal assets to secure a loan. This is often the only way to get loans in the early years, but you should try to build business credit so you can borrow without risking personal assets.
If you can not get a loan
You may not be approved on your first try. Lenders can refuse applications for almost any reason, but they should be able to tell you why you have not been approved. In most cases, they do not think that you have sufficient income or credit history to justify the requested loan. You may need to find another solution, write a letter or try to borrow with the help of a co-signer.