When you need money to start or grow your business the Dos and Don’ts of Applying for a Personal Loan, applying for a loan can seem like the best way to go about getting it.
In fact, in some circumstances, this is true:
The Dos and Don’ts of Applying for a Personal Loan
But before you dive into the world of borrowing money from other people, be sure to consider these dos and don’ts of applying for a loan first.
Before you start looking at any loan programs, consider these key things:
1. Financial Situation
Before applying for a loan, make sure you have good control over your financial situation.
If you don’t then you might apply for loans that will hurt your financial situation rather than help it. The best thing to do is check out your credit score and make sure all accounts are up to date and current.
2. Next, you need to check to see what kind of interest rates various types of loans cost. There are many different types of personal loans with very similar names but there can be some big differences in terms of fees and repayment terms.
While there are usually fees involved in all kinds of borrowing money you want to be able to avoid them if possible by getting a low rate interest or even one without fees attached
3. Capacity To Repay Loans:
When applying for a loan, try not to take on more debt than what you can repay within six months or so because otherwise, your chances will be low when applying for an additional loan in the future.
Showing that you can repay multiple debts successfully proves that their risk of investing in another loan would be lowered if they chose you as their lender.
With these said, here are the The Dos and Don’ts of Applying for a Personal Loan:
I. Gather all your financial information
When applying for a loan, gathering all your financial information will help you come up with realistic loan goals.
For example, if you have $5,000 in savings and little to no credit card debt but your income is only $2,000 per month, it’s unlikely that you’ll be approved for an auto loan.
It’s best to apply for loans when you’ve already started saving money so that you can show lenders how serious you are about making payments on time. Think of it as applying early rather than applying on time.
If possible, try to save even more money before applying so that your monthly payments won’t come out of thin air it can be challenging to manage additional expenses while also paying down debt.
The more responsible you look, the better chance you’ll have at getting approved for a larger loan amount.
Keep in mind that while there aren’t specific regulations surrounding loan applications, each lender has its criteria and may ask for different documentation depending on what type of loan you’re applying for.
The important thing is to make sure they get everything they need upfront so they don’t waste time trying to track things down later. Remember: Having less paperwork at hand during your application means fewer delays!
They’re often good sources of emergency cash: With interest rates hovering around 2%, personal loans are one way to build up some emergency cash without having to put much thought into it.
II. Discuss with your family/partner
If you’re thinking about taking out a loan, it’s smart to discuss it with your spouse or partner. After all, they will be helping you repay the loan. If possible, get on board with your family/partner before you apply for any loans.
That way, if there are serious objections to repaying it in full or interest rates that seem higher than necessary or payments that aren’t doable, you can negotiate a better deal or figure out an alternative way to finance what you want.
For example, if you’re looking at refinancing your home but your mortgage is already lower than the market rate, consider other alternatives such as a personal loan or credit card debt consolidation.
The bottom line: Before applying for a loan (or borrowing money from friends), sit down with those who will help pay it back—and find out whether they have any objections beforehand.
You’ll save yourself some time and effort—and possibly money!
III. Think about extra costs
While applying for and receiving a loan is an exciting time, you should also be sure to carefully consider any additional costs that might come with it.
For example, many private loans will have an origination fee, which means you’ll need to pay a fee to receive your money. These fees range from 1% or 2% on average.
Just think about how much interest you’re going to pay over time; while some may not see it as extra money they could be earning elsewhere, it can add up in your budget over time.
Your new loan is going to be very tempting, but resist if you can—save that cash!
If you do decide to take out a loan, just make sure that you’re clear on all terms before signing anything. It’s important to know what you’re getting into when it comes to long-term financial obligations like these.
The last thing anyone wants is for their dreams of starting their own business to end in debt collection calls! Make sure that doesn’t happen by being thorough during every step of the process.
The Dos and Don’ts of Applying for a Personal Loan: Don’t do these two things.
I. Try to hide medical bills from your partner
Having to pay off medical bills on your own can be stressful, but it’s even worse if you have to hide that information from your partner.
Hiding such important details could lead to irreparable damage in your relationship.
(From Wise Bread) Before you make any big purchases or take out a loan, take some time to discuss money matters with your significant other.
By being open and honest about what you’re buying and why you can avoid later misunderstandings.
It also shows them that they can trust you with more than just their love: They can trust you with their money too. Plus, it will help keep both parties involved in decision-making about finances going forward.
II. Forget how much you earn/spend
You know you’ll need to gather financial records most likely including your income tax forms, W-2, bank statements, and credit card statements.
And when it comes to your debt-to-income ratio, lenders will want to know how much debt you have compared with how much money you make.
But don’t try to total up all these numbers at once. Start by making a list of all your debts (not just loans) from smallest balance to largest.
Next, jot down what each loan/debt is for and how much interest you’re paying on it. Then see where that puts you in terms of the overall monthly payment amount and interest rate.
Your next step is to talk with a lender about which debts are safe to pay off first, given your income level.
(You can do that online or in person.) Just remember:
The point isn’t necessarily to eliminate all your debt ASAP; rather, it’s about finding an affordable way out so that eventually you’re not stuck paying hundreds every month in interest alone.
That’s smart borrowing—and smart planning!