5 Things To Consider Before You Apply For A Loan
Are You Ready To Borrow?
People are always in need of money. With limited savings, we can’t have our home renovated, buy a new car, expand our business, or pay our medical bills. Not having enough money for your plans nor an emergency fund may be an unfortunate thing, but it’s a common thing most people experience.
For that reason, taking out a loan has always been considered as an alternative to meet these financial needs. However, before borrowing, it is necessary to understand loan options and the danger and going in blind. After all, these loans are created help you make your situation better, not worse, in the long-run.
Here are five things that you need to consider before applying for a loan:
- Know why you need to borrow and how much
Borrowing is a big financial step, so applying for a loan should not be taken lightly. You have to understand why you need to borrow. This is important because when it’s about time to pay for the loan, you are not just paying for the amount of money you collected. You have to pay for interest, plus other fees, depending on the lender.
Evaluate and analyze your situation by asking a few questions to yourself such as:
“Can I manage the situation without borrowing?”
“Do I have better options?”
“Do I really need the loan?”
For each question, try to be objective. When you know that in a month or two, you’ll get sufficient funds for your needs, maybe you don’t have to risk it. Perhaps, if it is not an emergency like going on a vacation or renovating your home, it is best to save in advance first.
In line with that, understand how much money you need. The larger the amount of money would mean more interest. Thus, borrowing more than what you need isn’t practical since it is just going to push up the interest you have to pay.
- Understand the different loan options and their interest rates
There are different loan types because borrowers have different situations. To get the right type of loan for you, make sure that you understand these loan options.
- Personal loans
Commonly, people go for personal loans because they can use them for many purposes. To finance your small business, pay for hospital bills, and consolidate debts are a few reasons for personal loans.
What’s good about it is that your application can still be approved even without putting up collateral. The basis for approval will be your credit score. However, since you are usually not required to put up collateral, you have to deal with high-interest rates.
- Business loans
People who are starting their business, expanding established ones, or opening a franchise take out this type of loan. Usually, interest rates are negotiable and personal assets are commonly required to be put up as collateral.
Business loans usually include:
- Term loans for general purposes.
- Short-term loans that should be paid in less than a year, equipment financing for equipment purchases.
- Lines of credit for specific loan amounts.
- Student loans
Higher education becomes necessary in our time today, especially to survive the corporate world or to follow a certain passion. Because education is costly, you can borrow the amount from a private lender or the government.
Like how other loans types, you have to pay for the loan, including the interest, in due time. You can use the money you’ll collect for tuition fees, board & lodging, and other miscellaneous fees.
While rates can be reasonable, you need to think twice about taking out student loans. They may affect your future because the first thing you’d do with your first salaries is to use them as payments for these debts.
- Home equity lines of credit
You can use the money for any purpose, but the loan sets your home as collateral. Typically, rates are variable because you have access to money over the years.
The downside of variable rates is that you will have to pay more interest than expected when the rates went up.
3. Ask yourself how much you can pay for each month.
Knowing how much you can pay each month is an essential factor to identify how long you need to take out the loan. If you need more time to pay the obligation, then you can increase the length of time of your loan. But as a result, you have to pay more interest.
Take note that your financial situation is more likely to change in a longer period than a short period. On the other hand, short-term loans are better if you are thinking about the interest. And besides, lenders are primarily concerned about your ability to pay back the loan shortly.
4. Borrow from a credible and reputable financial institution
Borrowers should be protected against hidden charges and other fees not known or presented to them. When you borrow from a regulated credit provider, you are ensured that your loans are suitable and are according to what the law requires.
Furthermore, be aware that lenders also have a code of conduct to follow. Even if you are badly in need of money, don’t take offered loans with unacceptable rates. It is against their ethics, and the law does not permit such transactions.
5. Understand the terms and conditions
Misinformation should not become a problem when you need to pay back the loan. So, to avoid such a dilemma, you must have carefully read the terms and conditions before signing the loan agreement.
By having enough understanding of your agreement, you would know what to do, and that might help you decide if you feel comfortable with those terms and conditions. Don’t ever settle for risky and suspicious terms.
Become a Blend.ph Borrower Today!
Taking out a loan comes with a responsibility to ensure that you can meet your obligations on time. This needs a thorough plan, budgeting, discipline, and commitment to paying back what you owe to lenders. Otherwise, your credit score will suffer, and the default may even escalate to legal issues.
If you feel like you are ready to start a responsible borrowing journey, we invite you to explore the loan products offered by Blend.ph. Depending on your needs, Blend.ph has a loan product you can check out. Register for a borrower account and begin the journey to change your life!