Loan, it is the one thing that we hate to take but at the same time have no choice but to take. What is a loan? It is basically borrowing money to pay it back. The difference between borrowing money and taking a loan is that you will be charged some extra money for the duration which you have to pay regardless. This is called a loan interest. The longer you delay, the greater the interest will be. This means that you may have to pay more cash than the original loan itself if you delay too much.
Now how soon this happens depends on the interest rate and the time you delay. This feature can be very well used to launder money. In fact, this is one of the most common crimes. Technically this is not a crime though as both the parties agree to the deal so this is somewhat in the grey area. How this is done is a topic for another time. For today we will focus on the process of taking a loan.
There are a few things that you need to know before applying. They are the organization from where you are taking the loan from, the amount you need, and the interest you are willing to pay. Of Course, there are times when you don’t have the time to think of all this as people mostly apply for loans when they get desperate or when they do not have an adequate amount to pay for the current needs but are sure that they can pay later on.
So with these things cleared let’s get into the process itself. We have divided this into a few steps.
Table of Contents
Step 1: Decide on the amount and interest rate that you are going to accept from the loan.
As mentioned earlier, you have to fix how much money you need to loan. You may need a lot of money immediately but before taking a loan, try to gather as much of the needed money by yourself. Be sure to take a bit more than the immediately required amount as well for emergencies. Once you have decided on the amount that you are going to take, you have to decide on how much interest you are willing to pay.
Know that the larger the amount, the more interest you will have to pay. On average the interest rate is more or less 10% of the original amount. The interest rate depends on the organization though so be sure to research thoroughly.
We know that you may not have the time to research to deploy but if you take a loan with a high-interest rate, you may just have to pay the interest for the rest of your life so better safe than sorry.
Step 2: Take the right type of loan.
As with almost everything, the loan has different types as well. Some have more general benefits than others while some are made specifically for one purpose. Some of the types are education loans, health loan, and Mortgage loans. The ones who give you these types will do a background check on you before willing to give you the loan. If you fail to pay it back, then they will either charge you slowly but constantly or sell your assets.
Then another category the one that you take to pay other loans. This can be a never-ending loop but if the payment is less than the amount you take then this can be resolved rather easily. The process is simple as well, just take a bit more than you need to pay and then invest the extra amount into something that has a good chance for profit such as shares or debentures.
Step 3: Know the organization
As mentioned in step 1, you have to research the organization from where you are taking the loan before taking it. If it is a money launderer then we are sorry to say this but you will never get out of that loop unless you win a bug lottery. If the organization is a well-known bank then it will be harder for you to apply. That is unless you have an existing account there in which case you will get some benefit from it.
Additionally, you should also know the interesting history as well. There are quite a few banks out there where the interest rate fluctuates rather often. These banks do not have a fixed interest rate for the loan. However, this does not often happen in big organizations or banks and is limited to small ones. As mentioned earlier, it will be harder for you to take the loan if you apply to a big bank, however.
Step 4: Check your credit score and apply where you will succeed
A lot of you may not know what credit score is. In short, it is the numerical calculation and representation of the likelihood of the customer paying the money back. In other words, this is the technical way of determining how trustworthy you are with money.
You should know this as the score will affect your interest rate and the acceptance as well. The lowest credit score is 300 and people with scores anywhere near 300 are mostly not accepted for loans. The average and fair credit score starts from 670-739 and anything above this will ensure you that you have a good deal while making a loan.
You must be wondering how you can know a credit score right? The process is rather simple. You just have to enter the credit score testing site and follow the steps. You will need to enter some details though but these sites do not require any vital details.
You can click this link to apply to check your credit score.
Step 5: Gather your documents
Normally gathering your documents would be the first step but in this case, this is the second last step. That reason is pretty self-explanatory as you need to prepare and research before you decide to take a loan. So what documents do you need? Let’s list them below so that it will be easier to read and remember, shall we?
- Citizenship card
- Drivers Id, passport, or Pan card if citizenship card is not available
- Employment proof
- Bank Statements
- Social security Number for credit score verification
- Employers contact details
- Liquid asset evaluation if you are applying for large amounts
With these documents in place, you can now apply. We understand that it takes time to evaluate all your liquid assets but that case is somewhat rare and only done when you are either taking a loan to invest in something big or to save something big and are willing to risk a lot of things.
Step 6: Apply for the loan
Now with this being the last step, you might feel at ease but you still have to be careful. What most organizations do is that they give you time before you fully apply. In this, they will give you a form with their terms and conditions after the initial form. This is so that you can read their terms and conditions for your loan thoroughly and understand them well.
What this does is that this will keep them safe from everything related to you and give them the power to sue you or seize your assets if you fail to pay the loan on time and/or go AWOL. AWOL basically means you disappear without any notification and it’s full form is Absent WithOut Leave/permission.
If are confused about what banks to choose to apply for a home loan, just follow our link here to know the 6 Best Banks for Home Loans.
And if you want to save money why don’t you try our 52 week Money Challenge Here?