10 Tips You Must Know Before Taking Out a Loan

The first loan you will ever get is exciting and thrilling. It’s a valid sign that you can be trusted with money and the responsibility of managing it. There are risks involved though in getting and maintaining a loan which you must be aware of.

Here are 10 tips you might find useful to know before you apply for your loan.

1. How you handle your loan will be reflected in your credit standing, so you need to make sure you handle your loan properly. A bad credit standing will make it difficult for you to even open a bank account, and this status could stay in your credit history for as long as 10 years if not fixed right away.

2. Banks do not just base their approval of loans based on your credit standing. They also look at your character and how you manage you business and personal life. Some banks even require a psychological test to find out if you are ready for the responsibility. Definitely, they look for character references, and will go out of their way to check the people you listed down on the application form.

3. The most important matter to a finance company is being able to establish your paying capacity. If you can prove this, then you will have an easier time getting your loan.

4. Have you any collateral to offer? If you are planning to apply for a large amount, you will definitely need collateral. You cannot offer collateral that is not worth more than what you are applying for.

5. You need money to make money. Sad, but true, so your most important skill before applying for a loan is fund management. Have you any experience with money - handling it, and how you managed to budget what you have? If you have never even owned a savings account, you might have a difficult time getting approved.

6. If you are applying for a business loan, you need to present a feasibility study on the business. Without this, you have very little chance of getting approved.

7. Ask around for the best bank to approach. Your family members and friends will always be a good place to start. Surf the internet for feedback and blogs on online companies that offer loans. One word of caution though: online lending companies can a traumatic experience for a newbie since there are so many fly by night, unscrupulous stalkers on the internet, so watch your back and never plunge into any deal with someone you cannot verify.

8. Talk to more than one company. You have every right to canvass for the best deal. You can even let the other banks know you are talking to other banks. The general rule in dealing with banks is first impression. If you are happy with how they receive you, then that is a good sign. If from the get go, the bank frontliners are rude and abrupt with you, then this does not auger well for any kind of relationship with this bank.

9. Don’t try to be too ambitious with your loan. Keep it to the minimum, if possible so that you will not be pressured when keeping up with your payments.

10. Read every fine print, every line on the loan contract, and understand it all. If you don’t understand it, ask. Keep asking until you do.

Quote of the Day:
Go through the lender's approval criteria very carefully. Apply only to one where you can qualify. If you apply to a company that has stringent criteria and get rejected, that can actually hurt your chances of getting approved by another company with more relaxed criteria. - Prakash Menon

Best Reading:

• What are the types of loans?
• What is a Loan?

Conclusion: The basic rule is to know what you are getting into, and never sign anything without looking at it properly.

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