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27-01-2020

The Process of Getting a Bank Loan

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Financial Blog

Everyone can occasionally run out of money and need an extra source to get their budget gaps filled, however, without some financial background, borrowing seems really complicated process and many people need some instruction to succeed. No matter what kind of loan you want and what’s the reason of borrowing money, remember “Knowledge is power”, so learn about the advantages and disadvantages of the loan product you intend to use and don’t jump right into the process of applying.

Why Credit is Important?

Credit is essential if you want to take part in any financial affairs. So, especially if you want to take a bank loan, you will be required to have a good or an excellent credit score to be eligible to apply.

Initially, you can’t rely on getting big amount of loans from the neighboring bank as it’s like asking a stranger to lend you some cash. If you don’t have a reliable financial history that the lenders at the bank can base their decision on, then you are also a ‘stranger’ to them who they can’t trust.

The question is; how to build good credit if you can’t get support from the traditional financial institutions? You need to start from small and work towards bigger amounts. Thus, in the beginning, you will be able to borrow small sums and then get the opportunity to take bigger amounts.

Make Calculations before you Apply for a Bank Loan

The last thing that the potential borrower should do is rushing and missing all the necessary periods before applying. One of the most important steps is figuring out how much money you actually need, and whether that sum is appropriate to take taking your monthly salary into consideration.

The fact that you will pay for the loan later makes some customers act carelessly and they almost always end up having problems with late repayments and consequently bad credit score. To avoid that make sure you do some maths before applying to understand how much you need and how much of your salary you can use for making payments.

What type of bank loan is appropriate for you?

There are different types of bank loans and after doing your calculations you need to understand which type will be appropriate for your case. While making the decision you need to take into consideration your purpose of getting a loan, your income, and many other factors. Here are some types of bank loans you may choose from:

  • Auto loans - for buying cars or other means of transportation
  • Mortgage loans - for buying a house or taking a loan using your house as collateral
  • Personal loans - no boundaries on the way you spend your cash, so can be used for any purpose
  • Business loans - for starting or expanding your business
  • Student loans - for taking care of tuition fees or other education costs
  • Quick cash loans - for urgent need of cash in case of emergencies

There are some lenders and financial institutions that require proof of using the cash for the specific purpose you have mentioned while applying, and you can even get charged some penalties for breaking the rules. However, the personal loans, for example, can be used for a variety of purposes with no need to reveal it to the lender. So, before applying try to clarify this to avoid future complexities.

Choose the source that will lend you money

Nowadays, there are multiple ways of borrowing and you can choose the one you want and feels most comfortable to you.

Banks are reliable to take loans from and can suggest different types of loans at affordable prices. There are also independent lenders who suggest their lending services online or at an office, so you can consider that as well. There are online platforms that compare the rates and fees of different companies, so they may be really helpful for choosing an affordable option.

Remember, there are dishonest lenders in the industry that impose short repayment terms with high interests that are hard to meet and many people end up falling into a debt cycle. To prevent these unfortunate circumstances, make sure you ask for a license and don’t participate in illegal affairs.

Understand how the loans work

Before taking the responsibilities of a borrower you need to be armed with good knowledge about all the details and peculiarities of different types of loans. Even if you don’t need to borrow now, you will most likely need one in the future, so it’s always a good idea to know which way to go when you have some problems.

So, the features that you need to pay attention to are:

  • Interest rates of the loan,
  • The repayment terms, whether you will need to pay with one lump sum or with smaller installments
  • Means of repayment, i.e. by bank account or cash
  • What happens if you fail to repay the loan; are there cooling-off periods?

You need to clarify these points with the loan specialist before making the final decision.

How to apply for a loan?

After you are done with the theoretical part of the job, it’s time pass to the practical one which is actually applying for the loan you have decided to take.

Depending on the type of loan you will go through different application processes, for example, in case of online loans you will fill out an online application form. You will be required some personal, financial, occupational information and contact data to get connected with you. Most lenders will also require a proof of a steady income, so make sure to provide that to increase the chances of getting approved.

Once you are done with filling out the loan request form, you need to submit it and wait for a response. The lender will process your information and come up with a final decision after running a soft or hard credit check. If you meet the requirements and have all the necessities ready, you will make the process much easier and quicker.

What if you don’t get an approval?

There are several reasons why a lender may not be willing to work with you and some of them are insufficient credit score, low income, too many debts, insolvency, and so on. The lenders usually provide you with the reason for rejecting your loan, so you can try to fix that problem or apply with a guarantor.

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Written by author-twitter Jodie Adams

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