Before you apply for a loan, you need to do everything possible to ensure that you will be approved. A rejected application has an impact on the chances of qualifying for subsequent loans. Why? Because whenever you make an application, lenders make a hard inquiry on your credit which can temporarily lower your credit score. If you then continue to apply for loans elsewhere, but you don’t have the credit history to get, you may end up with numerous hard inquiries and those can actually lower your credit score.
When applying for a loan, financial prudence is critical. This means the loan should help improve your financial situation somehow. For this reason, financial experts advise borrowers to always shop for the best interest rates. The price that you pay for using borrowed money is what we refer to as interest. A high interest rate is beneficial from the lenders’ standpoint because it indicates higher profits. However, a higher rate means the loan is expensive for borrowers. In general, borrowers want to find loans at lower rates. Since different lenders charge different prices for the same loan amount, rational borrowers will take time to compare loans online and shop for the best interest rate.
While the interest rate of a loan is one of the main factors for consideration when applying for one, there are also other factors that need to be considered when applying for loans. For example, you may find a loan at a very low rate, but it could have a string of other terms of lending that make it less than ideal.
Some loans may be advertised at very low rates, but lenders could charge other costs that may end up making it expensive. Even then, the interest rate may be favorable, and you still not qualify for the loan. And therefore, the question is what factors other than rate should you consider before choosing a personal loan? Here are the basic ones.
Whether you meet the requirements
Not anyone can apply for a personal loan and get approved. There are common requirements
that all borrowers are supposed to meet. The first thing you need to take into account is whether you meet the necessary requirements to be approved for a personal loan.
Here are some of the basic requirements that all borrowers are expected to meet.
- Be of legal age
- A steady job or a regular income
- Details concerning your current situation.
These are the basic requirements that you need to meet before approaching a lender. While
there are some loans that you can qualify without having a steady job or income, much is always required.
The purpose of the personal loan
Why are you applying for a personal loan? You must have a solid reason for applying for a
personal loan. The reason for applying for a loan can have a big influence on whether or not it’s approved. The loan officer must be convinced that you really need the loan and that the funds will be used in the best way. The loan officer has to convince the review team that you do actually need the loan. For this reason, you should always have a good, convincing reason for applying.
Also bear in mind that there are different types of personal loans, and each one of them must be used for specific purposes.
A personal loan may be secured or unsecured. A secured loan requires collateral; it needs to
be secured with a valuable asset. In the event you default, the lender can seize the property and use it to cover the outstanding loan balance. An unsecured loan does not require collateral.
Other related fees
As mentioned earlier in this article, while the interest rate is the most important factor to consider for most loans, you should also check for other related fees.
Many lenders attract borrowers with lower interest rates but charge additional fees that may end up making the loan very expensive.
The following are some of the common expenses that lenders often charge
- Early payment fee
- Late payment fee
- Origination fee
- Withdrawal fee
Take time to examine the fees associated with a loan before signing the contract. It’s crucial that you understand the terms of the loan you want and all the associated fees.
In many jurisdictions around the world it is the responsibility of the lender to explain to the borrower the terms of the loan using simple and understandable language. So, ask about the fees.
The loan duration
The length of a loan is another critical factor to consider. The repayment period for most personal loans often ranges between 1 and 5 years. You need to examine your financial position and go for a loan with the most appropriate repayment terms. You may not want to accept a very short loan term if that it will be difficult to keep up with the payments. Also, an extended repayment period may mean paying a lot of interest.
How you are going to repay the loan
Do you have a solid payment plan for the loan? If the answer to this question is “NO,” then do not apply for the loan. It is vital to plan on how you are going to repay the loan before applying. How do you intend to repay? On monthly or weekly terms? Will you prefer repaying earlier than expected? These are the critical questions that should guide you in choosing the best type of personal loan.
The Bottom Line
While interest rate plays a big role in choosing a personal loan, there are other essential factors that you need to consider as well. We have outlined five of these factors. Being aware of them should help you on your quest to find the best loan for you. However, the golden rule here is not to borrow more than what you can afford. Even if you qualify for more, apply just for what you need and not more than that.
In the meantime do your research online and check various different sources to find the best personal loan offering in Singapore or wherever it is you may be located.