Once you have decided that you want to avail of a loan you should decide how much money you need. You should first try to put in as much money you possibly can to bring down the principle loan amount you will finally avail. You must also try to determine how fast you can repay the loan, the sooner the better for you. Never be tempted to borrow more money than you need because you will only end up paying the lender more interest.
Know your limitations
Next, you need to know your limitations. Depending on the type of loan you are applying for, such as a home loans, personal cash loans, car loans, business loans or caveat loans, you need to know how much you can afford. If you are considering taking out a mortgage you will need to know:
- your equity of your current home
- the maximum amount you can put down
- the maximum monthly payments you can comfortably manage
- consider real estate taxes that are due every year on your mortgage
- the closing costs of the loan
- the amount of insurance you will need to take out on the loan
- other monthly obligations such as credit card bills, alimony, child support and student loans
Work out the monthly payment
Locate a good loan calculator and find what your monthly payments could be. There are many good loan or mortgage calculators available online.
Next you will need to know your credit score. The interest rates you pay will vary significantly depending on this score. If your score is bad you may consider repairing your credit score before you apply for a loan. Every lender will check your credit score when they process your application.
Finally, you must find a lender
Finding a lender may not be as easy as it sounds. Each bank, institution of lending firm will have their own set of rules, procedures, rates and fees. It is best to talk to friends and get some recommendations. Discuss your requirement with at least three lenders before picking one. Check with your credit union if you are a member of one. These unions usually provide great rates to their members.
In addition, it will do you a world of good to check online sources as well. Some terms you could research are; mortgage broker, lending banks, mortgage lender, home loans, personal loans and internet lenders. A very dependable place to get a loan will, at most times, be your bank.
Comparison and research
The points you should note and compare include: Interest rates, pre-mature loan closure fee, part payment fee, maximum tenure, closing fee and application fee.
Research what documentation you will need to provide the lender along with the loan application. These documents could include: your appointment letter, proof of address, social security number, and proof of identity, six months bank statement reflecting your salary, some collateral and perhaps a letter from a guarantor or two. In fact, it may help if you can provide additional information on any investments you have made. Proof of a second income, overtime earnings, bonuses and commissions earned, will help make the process a little easier.
Once you are certain of the amount you want to borrow, the time you will need to repay it and have the documents you need to submit with the application, you can apply for your loan.
A little about mortgages
In the case of a mortgage you will receive a “Good Faith Estimate” from the lender. This is an estimate of all the fees associated with your loan; some loan companies call this a “pre-approval” letter.
When all the formalities have been completed, which will definitely include at least one interview with the lender, you will have to wait it out. The lender will assess the risks involved before approving your loan. However, many lenders can process your loan within a matter of days if not hours.
Repaying the loan
Finally, when the loan has been approved, the lender will fund a “loan account” with the amount you have applied for and will disburse the money to people you specify from this account, or they may leave that up to you to do personally. In any case, you have to repay money into this “loan account,” which works in reverse to a regular account. Each payment you make into this account towards the loan will reduce the total balance of the account by that amount. This way you will always know the amount you are required to repay the lender to close the loan. Once this amount reaches nil the loan account will automatically close.