The Basics You Should Know When Applying For A Loan

Have you ever applied for a loan or a credit card from a bank? How much information about the loan itself were you able to obtain from the loan officer / bank employee before actually applying for the loan?  Don’t you wish there was a website that could compare loans offered by different banks?

I have applied for loans several times, and one of the most frustrating things about shopping for a loan is lack of clear information about the interest rates, the amount you qualify for, and the other expenses you will need to bear in addition to the interest. I loved this site http://www.oceanfinance.co.uk/ in that the information you need to apply for a loan, credit card or mortgage is easily accessible, and in a user friendly manner.

In the absence of a similar website, what do you need to know before applying for financing?

1. Know the kind of loan you want: Before heading to the bank, understand your financial needs and the kind of loan that will meet your that need, and the amount you can comfortably service.  For example, if you want to buy a car, asset financing is cheaper  than getting an unsecured personal loan.  The downside to asset financing is that you can only borrow about 70% of your car’s value, and the funds can only be utilized for that purpose. Therefore if you’re looking for a car loan but would like some “spare change”  for other uses, a personal unsecured loan may be the best option for you.  If you’re looking for a mortgage, it is important to be savvy even when house hunting. All houses are not built equal.

2. Take time to shop for the best deal: There’s an African proverb that says something like; until you have tasted someone else’s cooking, you think your mother is the best cook (I am paraphrasing).  Before committing to your bank, take time to shop for similar products by other banks. You will be surprised at the differences in rates and product offering by the different banks. Some banks are really good with mortgages, but not so good with asset financing. It is important to ensure that you are getting the best deal there is.

3. Carry the checklist:  Once you have the information on the requirements for the loan, create  a checklist of the documentation needed for the loan application. file your application when you have all the information at hand, otherwise it may delay needlessly.

4. Ask questions and read the fine print:  In  the excitement of applying for a loan and getting it approved, you may forget to ask all the important questions. Ensure you know the interest rate at which you will be repaying the loan, whether it is fixed or flexible rate, if you will be penalized if you repay the loan too early, and if there are deductible expenses on the loan.  Most loans come with an insurance component that’s payable annually, and arrangement fees that are deducted from the loan before it is disbursed. Ask as many questions as you need to at this point.

5. Have the right expectations:  Do not apply for a loan when in a hurry, and never trust the timelines banks give on their advertisements (“48 hour approval!”). They’re rarely an accurate reflection of reality.  Putting together a loan application and the approval process takes time.  Discuss the sequence of events so you have an idea how long it will take and plan accordingly.