The improvement and evolution in financial institutions and regulatory bodies in recent years has made it possible for individuals to possibly own assets through leasing and loans, that they would not be able to purchase on cash otherwise. While applying for a loan – whether it be a home, automobile or personal loan – there are certain things that individuals should be mindful of. Listed below are a few things that every individual know be aware of before applying for a loan:
Know your own credit score
An individual’s credit score and credit history has a huge impact on their loan application’s acceptance and on the interest rate they are offered. The poorer tbe credit score, the higher are the chances of the individual incurring a high interest rate on their loan. A good credit score, however, ensures that the individual secures a loan on their own terms. Especially for long term loans, the difference between interest rates and terms can significantly add up and cause the cost of loan to increase substantially.
Be mindful of your income
An individual’s take-home income affects their ability to pay interest payments on time and ultimately affects their ability to pay back their loan. In order to afford their periodic loan payments, individuals should carefully calculate their expenses and ensure that they would not have to struggle with loan repayment. While calculating expenses, individuals should be mindful on firstly all their regular and irregular expenses, and secondary about all their primary and secondary sources of income.
Be ready for a detailed application
While some loan applications are fairly simple and require basic details, more specialized loan schemes may require an extensive application filing. Individuals should be mindful and prepare accordingly. Most applications also ask for the applicant’s current and past employers’ information in order to verify their occupation and income, and individuals should hence be ready to provide that information.
Know your net worth
An individual’s net worth is determined by the assets they own and the liabilities they owe. A loan application’s acceptance depends on an individual’s net worth and hence individuals should be fully aware of it. Individuals should also be mindful of the fact that drawing a loan will increase their financial liabilities and obligations and hence affect their net worth. Additionally, knowing your net worth is a great method to ensure your financial health and making sure that you maintain a good credit score.
Calculate your monthly debt payments
Your home, automobile or personal home interest rates will have the ultimate effect on your monthly debt payment. This will in turn have an effect on your disposable income and your overall monetary and financial cycle. For instance, if your monthly salary is $7500 but your debt payment amounts to $5500, you would only have $2000 left for your monthly expenses. This could mean that you would have to squeeze your expenses and compromise. Hence, prior to accepting a loan or applying for it, one should be mindful of your monthly debt payments.