Every individual incurs a form of debt which is called loan. This loan can be an asset like a house and lot or a car. It can also be a sum of borrowed money that is expected to be paid back with interest and within a certain period. Loans can either be long-term or short-term.
Why do people get a loan and where can they get one?
People get a loan either to get extra cash to augment living during unexpected situations and emergencies just like the pandemic we are facing nowadays; or in order to acquire properties like a vehicle or a house. People can borrow from various loan providers which can be private entities like banks and lending institutions or the government. Banks, the most common lender, are traditionally offers a less expensive fees, but they are harder to work with and more difficult to get a loan approved with. On the other hand, private lenders tend to be more flexible and responsive, but they can also be more expensive and some have a lot of hidden charges especially when your payment is at default.
Government also offers a vast array of loans to individuals, businesses and communities. The loans that the government offers are easy to qualify for because it is part of their public service and their commitment to help their people in need. Government loans also have competitive rates and they offer flexibility when you face financial hardships in life.
Nowadays, borrowing money becomes a lot easier and more convenient because you can find the loan you need on a website. By just checking the site, you can find all the important things you need before making a loan such as the requirements, interest rates, payment terms and more.
How would you determine if you are a good candidate for a loan?
First and foremost, loan applicants should be able to determine their own financial standing. Being aware of their capacity to pay will give them a clear idea on how much money they can afford to borrow without drowning in debt. Borrowers should be able to assess their overall monthly income and expenses and make sure that the excess in their monthly income after deducting the expenses for essentials is enough to pay for it.
For employed individuals and first-time borrowers, the standard reference of lending institutions are valid ID’s and proof of income of the borrower. They normally conduct credit investigation on the borrower. They may also reach out to the Human Resources of your employer and/or the reference persons you put on your loan application.
For non-first timers, lending institution also checked on the history of your past paid loans, looking at your credit score. The score you have here depends on how you repay your previous loans. The more that you pay on time or before due dates on our past loans, the higher your score on this will be.
Requirements differ for self-employed individuals and business owners. Loans for self-employed individuals (entrepreneurs and business owners) fall under the secured type of loan, usually backed by some form of collaterals. Collaterals are existing assets of the borrower, offered to the lending agency as a security payment just in case borrower failed to settle the obligation.
The simple rule of thumb before jumping into getting a loan: Plan it off, draft a worksheet. Make sure you can pay regularly based on the terms you agreed upon with your loan provider.