Whether you’re in some financial distress or you’re just looking for a little extra cash for a personal project, a loan can be a serious boon. Of course, it’s not as simple as just applying for the loan and being approved. There are many stages in between those two points that could scupper you if you’re improperly prepared. If you want to take out a loan, there’s a checklist of things you’ll need to make sure you’ve done and conditions you should fulfil. Here’s our handy checklist on what you need to do before you think about taking out a loan.
Knowledge of different loan types
There are lots of different kinds of loans, and which one you want to apply for will depend entirely on your personal circumstances. It’s important to know the difference between these types of loan so that you’re well-equipped when you’re sorting out your finances. In most cases, you’ll want to opt for an unsecured personal loan, which is where you’re granted a loan of cash without anything against which to secure that loan. This is the safest and best type of loan if you’re simply looking for cash, but there are other kinds with which you should become acquainted.
A good reason
You shouldn’t take out a loan if you haven’t already decided exactly why you need it. Don’t think of loans as free cash; they come with a ton of responsibility, failing to make repayments could seriously impact your credit score (more on which below), and you could find yourself in worse financial danger than before you took the loan out. Only consider a loan if you’ve already carefully weighed up the pros and cons and you know that this is the best option for you. There may be a different approach you can take that’s better suited to your situation.
A stable income
Loans aren’t for you if you’re unlucky enough to find yourself without a stable income. You see, if you take out a loan and are then unable to pay it back in the future, you could find yourself in worse financial trouble than before you applied. You should ensure that you’re able to make loan repayments in the future; a loan should only ever be for a quick cash injection and should never be to try and patch over a hole in your financial wellbeing. For that, you should seek the advice of your bank. Loans can only ever help if you already have the means to pay them back, which may seem paradoxical, but it’s true.
A solid repayment plan
Before you take out your loan, you should completely understand the terms and conditions underlying it. If you do, then you’ll know what the minimum repayment per month or per period as set out by the lender is, and you should be able to match that period. If you can’t, then you definitely shouldn’t take out the loan; missing payments may be accommodated by your lender, but even if it is, it’s going to mean bigger problems for you later down the line. Remember to always have a plan in place to make repayments, otherwise a loan may not be for you.
An understanding bank or provider
It’s crucial that you don’t simply make a decision based on the first option you come across when applying for a loan. Providers have different criteria and different approaches to granting loans, so the first one you come across may not be the best option you could possibly go with. Shop around and ensure that you understand everything about the provider you’re going with before you take the loan. This also applies if you’re looking to take out a mortgage; you may not get the most favourable rates if you settle for your first choice.
Knowledge about your credit score
Credit score is a pretty major determining factor in whether or not you’re approved for a loan. If you have a bad credit score, there’s a good chance many lenders will turn you away, and while this isn’t guaranteed, it’s definitely better to have a good credit rating. You can check this for free on sites like Experian and Credit Karma, so there’s no excuse not to discover what your credit rating is if you don’t already know it. In fact, coming armed with knowledge can help you during loan applications; if there’s a face-to-face interview, you may be able to explain any blips on your score.
A backup plan
If you are applying for a loan, it helps to have a backup plan in case you’re denied by every provider you talk to. This could be appealing to friends and family to help you out with money, or it could be the sale of some of your assets if you happen to have any. It’s not necessarily a likelihood that this will happen; after all, you’ll probably find at least one provider who’s happy to meet you on your terms, even if you do have a bad credit rating. However, if you do find yourself rejected by all of the providers you try, then you need to have a contingency plan in place.
We hope our beginner’s guide on how to take out a loan has been helpful. Whatever decision you make, please be careful with your personal finances; it’s very difficult to drag yourself out of debt if you do manage to get into it, so never, ever use a loan if it’s only going to make things worse for you (if you can help it, at least). We wish you the best of luck!
