The decision to take a loan is not that easy. The borrower needs to take into consideration all details about the contract and the conditions under which the borrower is taking a loan. There are also some conditions that the borrower needs to fill on the side of the bank to be eligible to take a loan from that bank. Some things are taken into consideration when evaluating the current financial state of the borrower that makes him eligible for loan application. For many loans, the credit score of the borrower plays a big role in deciding whether the borrower will receive the needed amount or not.
It is important to have all information in hand before applying for a loan. It increases your chances of getting the loan and finding the lower loan rates. So, here are some things that you should know before applying for one.
Soft and Hard Credit Checks
Before we explain what soft and hard credit checks mean, let us explain what a credit check is. For loan providers to check your identity, credit history, FICO score, etc. they do a so-called credit check to obtain more info about you. The goal is for them to know your payment behaviour and how much are you able to borrow. As mentioned in the start, there are two types: soft and hard.
Soft credit checks are done with or without your permission. The name itself suggests that these credit checks are done to obtain some general information which will give the lender a basic overview of your current credit situation. On the flip side, hard credit checks must be done with your permission and they are far more detailed.
You may think, why would anybody request a hard credit check? Well, some benefits come with it. A higher score is one of them. We found an article which dives into this topic with great detail and it is worth a read. Click here to read the full comparison between soft and hard credit checks.
Credit History Criterion
One of the deciding factors whether you receive the loan or not is your credit history. Based on your history of repaying credits, the bank decides whether you’re eligible for taking a loan from the bank or not. Many credits are rejected because they don’t fulfil this criterion. When the borrower has a lower credit history, it means that the debt management was badly managed and it can have an influence on your loan eligibility. In some cases, a higher interest rate is applied in such situations. To maintain your good credit score you need to pay your dues on time and you ensure this by using automatic payment. Otherwise, you’re reducing your credit score.
Repay the Full Loan Amount
Many don’t think about how they’re going to repay the loan in the application process. However, it’s essential to evaluate your financial state to consider taking a loan that you will be able to fully repay in the given timeframe. A good idea is to prioritize your needs and find out the ideal amount that covers the most prioritized expenses that you need to cover. No matter whether you need the funds for your wedding or the honeymoon of your dreams, you have to decide the amount you need to borrow according to the debt.
Bank Interest Rates
It’s a good idea to do a little
research on the interest rates in different banks. Falling into the
trap of gimmicky offers and plans will make it difficult for you to
repay the full amount in the given time. So, it’s important to take a
loan that doesn’t exceed the estimated amount that you can repay as
mentioned in the contract. Otherwise, you might have difficulties to
pay the monthly rates when they are higher than you’ve expected.
Again, reading the full contract and all details included in it
ensures that there won’t be any misunderstandings soon.
Additional Loan Fees
The interest rate and the monthly amount are not the only expenses related to the loan. Other costs might apply as well, such as processing fees, prepayment fees, late payment fees, etc. It’s important to evaluate all fees before signing the contract. It will help you to manage better your finances and decide whether that loan fits your needs.