Five tips for applying for a loan

Wondering what you need to do before borrowing money? Read on for five tips for applying for a loan.

When we are in a financially difficult place, some of us will automatically lean towards taking out a loan. Some of us will only apply for loans for things that are unavoidable, such as financing a car or buying a house. 

Whatever the case is, most of us will end up taking out a loan. Yet, how to apply for a loan is not one of those topics that is covered in school. Let’s break down for you what you need to think about before you apply for a loan. 

Of course, it goes without saying that you will need a whole host of paperwork to be able to successfully apply for any loan. ID, financial documents, employment status and documents, and so on. 

Yet, this is not what we are referring to, we are talking about what you need to think about yourself before you apply for a loan. 

Why do we need to talk to you about this? Well, the US population is at an all-time high of $14.96 trillion in debt, with an average of around 77% of American households having some type of debt. 

As we said, some of this debt is unavoidable, such as student loans. However, other debt can be avoided, so we need to make sure you make the right decisions on your journey to getting a loan. 

1) Make sure you really do need the loan

First of all, you need to make sure that you really do need this loan. For some people, taking out a loan when they are in a financial crisis is their only option, and it does save them… For a bit. But, then it plummets them into a cycle of debt as they struggle to pay online monthly payments

If you have savings that you can dip into to get you out of this situation, or perhaps can borrow from a friend or family member who might be more lenient than a bank or other lender, these are good alternatives. 

Perhaps just some smart budgeting will save you from financial distress, and managing your incoming and outgoing money might be all you need to save you. These things are all good alternatives if you can use them. 

Ensure you need the loan before you take it out, otherwise you could see yourself ending up in an endless cycle of debt. 

2) Search and compare

Before you decide on any provider, once you are sure you require the loan, have a look around. While one lender might seem like they have the best deal, you could be missing out on a better one. You need to compare any fees, the APR, interest rates, and the amount you will get. 

Remember to look online and note down what everyone will offer you so that you get the best deal. Your bank might give you a brilliant loan, however, another respected lender might be able to give you a better one, or a credit union might have better ideas. 

Always look around, do research. 

Remember to not only do this, so you get the best deal, but to also ensure that the lender is trustworthy and reputable, online lenders are not always the best, and sometimes it is wise to look at reviews online, and check their ratings before you choose them. 

3) Review your financial status

Review yourself once you have picked a lender, this is to make sure that you can actually afford a loan. Loans are not there to help people who are merely scraping by, they need to be repaid, and you need to be able to afford to pay back the loan. 

However, looking at your financial status will also give you a chance to see how attractive you will be to a lender. 

4) Have a look at your credit score

This also means looking at your credit score. Lenders will look at your credit score to see if you are too high risk to lend too. If you have a lower credit score, you might still get the loan, but at a higher interest rate. 

Check your credit score to see what you should expect from a lender, and what rates you may be able to get for your score. If you are not sure if you should get a loan, this can often help you decide if you will be able to afford it.

5) Always be cautious with how much debt you have

Finally, make sure that you are not taking out loans on top of loans. Having too much debt can run you dry, and you will end up stretched way too thin. 

If you have too much debt, your credit score may also suffer. So, if you are already paying back multiple loans, or credit card debt, perhaps don’t jump to take out another loan too quickly, or you will deepen the cycle of debt.