The Do’s and Don’ts when Applying for a Loan

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If you make a mistake applying for a loan, you delay the approval of the loan or will have the loan rejected. If you put the wrong information on a loan, it may be rejected or you risk being sued for fraud. Here are the do’s and don’ts you need to follow when applying for a loan to maximise the odds of the loan being approved quickly.

Explore Your Options

Don’t assume that the best loan is with your current lender or the institutions you already use. Do your research to see if there are lenders with lower interest rates and lower fees. Don’t rush into signing a contract with the first lender that makes you an offer, especially those that may advertise to you online via popups or online ads.

Don’t be afraid to work with an alternative online lender if you feel your credit isn’t good enough for a traditional one. However, if you’re going to work with an online source, do verify that the lender is real and has a good reputation; the last thing you need in a financial crisis is entering your personal information thinking you’re getting a loan and having your identity stolen, too.

Another variation of the “do your research” mantra is reading the terms and conditions of the loan before you sign. What can the lender do if you miss a payment? What clauses are you agreeing to and may not want to have enforced? Don’t rush to sign the application and don’t rely on what you are told the contract says versus what it actually spells out in the fine print.

Be Realistic about Needs versus Wants

How much money do you actually need? If you’re in a dire cash crunch, don’t go about borrowing money for just the rent that’s due tomorrow. Instead, include other necessary expenses like next week’s grocery bill, for instance. This simplifies the loan application process because you’re only applying with one lender for what you need until your next wage comes in. However, you need to consider needs versus wants. Don’t take out a loan to buy the nice new car you really want when a cheaper workhorse of a vehicle will do. Don’t apply for a quick loan to go on a trip with friends; that is a want, not a need. It is OK to say no, I cannot afford to go to your wedding so let me send a gift, or ask friends and family to help you cover the costs of travelling.

Consider the Costs

Consider the costs that come with various borrowing options. Some quick loans come with low-interest rates because they are secured by real property; if you fail to pay the loan, you forfeit that property. Don’t put up collateral you cannot afford to lose, whether it is your vehicle, your wedding ring, or your home.

Some quick loans come with different interest rates and fees. Calculate the total cost you’ll have to pay when the loan comes due. If you cannot pay the required payments per week or the lump sum due in a month, you may need to select a different type of loan. This is where selecting an instalment loan with a lower monthly payment you can afford on your current budget is better than a lower interest rate loan due in two weeks with the risk of having to roll over the loan into a new loan with additional costs.

Seeking a co-signer for a loan is one way to lower the interest rate or get approval you would not otherwise be able to receive. However, you need to consider the cost if/when you cannot pay. Are you going to leave your aging parents in a dire financial situation if you miss a payment? Will you ruin relationships if you cannot repay the loan and the lender goes after your co-signer?

Honesty Is the Best Policy

Don’t inflate your income or assets when applying for a loan. If it is obvious you’re lying, the lender will reject the application. If they approve your loan and then find you you’re lying, they will probably flag your name to say they should never approve you again, assess penalties or fees, and in some cases, seek fraud charges.

There are only some of the do’s and don’ts of personal loans. If you’re going to apply for one, don’t rush into borrowing with the first institution that shows up in the search results or first lender you see on the street. Be honest when applying for a loan. Consider the actual costs that you’ll have to pay over the life of the loan and what you can pay. Only borrow what you need to cover the cash crunch, and don’t go into debt for things you want. And, most importantly, be honest about your situation and don’t hesitate to seek alternative lenders if you have a less than stellar credit score.

 

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