Cash flow in either your checking or savings account can suffer at times, such as during an emergency. In contrast, a large expense might be necessary in the near future but coming up with the funds is proving difficult. A solution to most financial troubles is in the form of loans. Borrowing money allows you to pay off the most important debts while paying back the balance in a comfortable amount of time. Before you take on any kind of loan, learn about the most important parts of these financial resources.
- Credit Checks are the Norm
When you apply for any funding, such as title loans, you’ll automatically go through a credit check. This common process is where a lender asks for your credit history from three different bureaus, including:
The information that they provide will determine if you can borrow any money, the amount and probable interest rate. Ideally, you should ask for a copy of your credit report from each agency so that you can see how you’re being represented. Ask for any changes to the report if there are inaccuracies. A mistake-free report will ultimately help you fund a loan.
- Be Aware of Liabilities and Assets
Obtaining any loan means that you need some credit to prove you’re a worthy candidate. Take a look at your current debt-to-income ratio. This value is essentially comparing your monthly bills to all applicable incomes. If you’re spending more than you make, a lender cannot fund a loan. You must have enough resources at the end of the month in order to pay off the loan in comfort. Lenders may ask for collateral in order to secure the potential loan too. Think about your financial situation and if it’s a stable one. A steady paycheck tells the lender that you’re a good candidate for borrowed funds.
- Interest Rates fluctuate
You’ll often see interest rates advertised on television or online with incredibly low numbers. When you speak with a lender, however, the rates are entirely different. Be aware that interest rates fluctuate every day as the financial industry ebbs and flows. The rates are also determined by your creditworthiness. Bankruptcies, late payments and other negative marks on your history will equate to a higher interest rate. For this reason alone, you need a solid credit history with a high score attributed to it.
- Save Proof of Income
Each lender has a slightly different rule when it comes to proving income. In essence, they need to know that your income is steady for consistent loan payback. Be sure to save up six to 12 months of paycheck stubs in order to prove your employment status. For the self-employed, you’ll need about two years of proof. In some cases, the lender requires a call to your employer so that official employment proof is possible. Being prepared for these possibilities will only streamline the borrowing process.
- Follow the Term Rules
Each loan has a certain set of rules that are contractually obligating for each signer. The loan has a set length and amount so verify these values before signing any documents. Most loans are designated by month-long terms, such as 60 or 72 months. Smaller loans might be less than a year in length. Read over the fine print, and locate any information about prepayment penalties. You might be able to pay off the loan before the term is completed. However, you don’t want to be penalized with a fee if it’s listed in the contract. Read about late fees and how they’re applied to the loan as well. You want to understand every aspect of this lending agreement.
Be aware of the type of loan that you’re applying for, such as student loans. These funds might be offered at a lower interest rate than personal loans, but they’re strictly for educational expenses. Apply and use loans for their intended purpose, and you can finance almost any need throughout the years.