Be an alert borrower and be honest with the lender
Harry July 14, 2022

There are times when we feel the need to apply for a loan. If you are applying for a personal loan, you may not know the complete process or may not be aware of the formalities required. 

There are chances, too, that your loan application may get rejected. You can always work on your rejection reasons and apply for a loan again. 

There are some common reasons for loan rejection, such as poor credit history, any error in your loan application or seeking an unrealistic amount etc.

Borrowing money to stay happy

In most loan cases, the problem can be managed by procuring basic knowledge about the loan process. It is essential to address your problem to be eligible for loan approval. 

Applying for a loan is not an expensive deal. You just have to accept care of a few something to be eligible for it. Here are occasional essential steps to instruct you on how to apply for a loan.

Tips to consider for borrowing

If you are willing to avail a loan, keep the following points in mind.

Determine on the amount to be borrowed

The first step of a loan process involves deciding on the amount that needs to be borrowed. You have to analyse your situation by asking yourself what amount of money you need and why. 

Along with the amount, it is also essential to be clear of your payback capacity and the duration that you want to pay back the loan amount. 

This clarity will help you to get the best deal from the market and will also help you in comparing different loan rates with different lenders. 

Know your credit history

Credit history is one of the critical factors that help you get the required loan amount. It determines your paying capacity and the interest rate you are eligible for on your loan. 

Having a high credit score will be beneficial for you as it will facilitate getting a lower interest rate on your loan. 

If you are seen as a high-risk borrower, there are high chances that you will offer a high-interest rate. High APRs are usually offered to individuals who have a low credit score.

Before applying for a loan, check your credit score thoroughly and ensure to have zero mistakes; otherwise, they may affect your score. 

Once you have applied for a loan, still there are chances to improve your credit score. 

Be aware and make the comparison between different loan options

Comparison helps you analyse the pros and cons of various loan options. 

Similarly, when you are applying for a loan or any financial product, you should compare all the loans available with the lenders, their interest rates and payback terms and conditions. By comparison, you will be able to find the best deal for you.

Do not compare with all the loan options. Instead, find out the top 8 loans available and then make a comparison. 

Compare the APR quoted to you as it includes the total cost of the loan, including the principal amount, interest rate and (if) any other cost. After comparing, look out for the loan option that offers you the best rate and payback terms. 

It is advisable to go through the application criteria before initiating the process, as there may be different criteria for different individuals.

There are many loans available such as secured loans, unsecured loans, loans for the unemployed with no fees, debt consolidation loans etc.  

Do not depend on the loyalty factor

You may have a bank that you depend on for every transaction. It is obvious that while applying for a loan, you may want to go for the bank you have an account with and have been loyal to for years. 

The bank also knows you are a customer, and familiarity is involved. But, in the case of a loan, that loyalty may not always get you the best deal. 

Many lenders are new to the market and are attempting to attract new consumers. You can approach such lenders that are looking out for buyers. 

Since they are unique to the market, they may offer you a lower APR than other existing lenders.

Importance of loan term

The payback timeline is one of the essential aspects of the loan process. The lender will always focus on the payback terms and conditions if you are offered a loan. 

The payback term is directly proportional to the interest rate. The longer the payback duration, the more the interest rate you will pay in totality. 

The monthly payments come down to lower amounts in case of longer payback duration. Hence, it is a choice between the longer payback term and finishing off your loan fast by paying larger amounts in a shorter duration. 

Fixing the interest rate

The lenders fix the interest rate before handing over the loan amount and fix the amount for your monthly payments. 

This implies that even if there is an increase in the market interest rate, the interest rate will remain the same on your loan amount. It will remain unchanged. 

It acts as beneficial for you as it helps you create your monthly budget and follow a fixed monthly routine. The interest rates are fixed, but you may read the document carefully before making an approval on it. 

Alternative loan options

Instead of opting for a loan, you can consider making a purchase with your credit card that offers inters free purchases. This is feasible only when you are looking for small amounts. 

In the case of huge amounts, the credit card option doesn’t seem favourable. In the case of small amounts, loans may involve higher interest rates. 

Go for the option of 0% interest card purchase. This proves to be a cost-effective option in the case of smaller amounts. 

To ensure no backlog is there in your payments, link your current account to your debit account. This will automate your paying process and ease off your financial burden too. 

Do not opt for automatic PPI

A PPI (Payment Protection Insurance) on your loan is a reassurance that if you are unable to pay back the loan due to an income loss, you will cover the loan payments. 

Before opting for PPI on your loan, make sure to do a survey of the market and opt for the best deal available. 

Conclusion

If you want to be a good borrower, you should always maintain a good relationship with the lender. If something goes wrong, the lender is the only person who can save you from it. 

Make sure to be polite and honest with the lender. Along with this, focus on your repayments, and all will be well.