Whether for college tuition or medical care needs, at some point in your life a situation will rise that forces you to take out a loan. Even if you have the cash, some situations like financing a house or car may require a loan as the best payment option. Regardless of where you currently find yourself financially, here are five things you should know before applying for a loan.
Repayment Period
Traditional loans are usually attached with repayment periods that span between several months to several years. Payday loans, which are relatively embryonic, are to be repaid within shorter periods, anywhere between several days to several weeks. The latter is also tied to your paycheck periods, so you’ll have to repay portions of the loan every time you collect your weekly or bi-weekly paycheck.
Collateral
A vast majority of personal loans are collateral-free. On the same note, borrowing from establishments, like a pawn shop, will need you to surrender a possession with equal value in exchange for the loan. Furthermore, some payday loans and title loans require you to surrender the title of your home or vehicle to qualify for the loan. Make sure you are fully confident that you can repay the loan so as not to default the repayment terms and consequently surrender the title you used for collateral.
Credit Score
Your FICO score will be the single most important factor that determines your eligibility for a loan. Lenders are businessmen and not a charity group. They’ll want to know if you can repay the loan in time. Lenders will vet your finances, and any red flags generated from their research can either cause grounds for loan application rejection or higher interest rates. If you’re slow to pay credit card debt, that could hurt the probability of successfully getting a loan.
Limitations
If you do not want to be limited on how you use the money, you should secure a personal loan from well-established companies, like TruPartner Credit Union. Some loans will impose limitations in regards to how you use the money. This is put in place to protect the interests of the lender and ensure that repayment is successfully accomplished at the end of the loan’s terms.
Penalties
If you cannot pay the loan on time, don’t panic. Some lenders offer the option to reschedule or delay payment, and others will even go the extra mile to work with you and help construct a feasible new repayment plan. Some won’t be so forgiving so consider all your options when securing a loan. Missed payments can add up to hefty fees.
Ultimately, loans are not a dangerous financial tool if planned and prepared for carefully. The five aforementioned things above should be used as a checklist for determining your readiness and eligibility to take on a loan.