Obtaining a loan has a process and if followed correctly, the sped of its approval (or decline) will take place much faster. There are certain pieces of information a borrower needs to know before applying for a bank loan:
1. Know the purpose of the loan
A bank provides a range of loan categories that wary in tenure and interest rate (amongst other indicators). Housing and automotive loans usually have a lower interest rate. An individual seeking a loan for personal use (for a wedding, personal consumption or executive education, et al) usually fetches a higher interest rate. The highest being a short-term loan via cash advances from bank credit cards that sport one of the highest interest rates.
2. Collateral may be needed
Depending on the type of loan requested, its principal sum and the individual’s credit history; certain banks may insist on collateral be present as a security against loan default. This may not be a general rule, but the subjective to the level of risk the individual may pose financially.
3. Relationship with the bank
Certain banks prefer to do issue loans mainly to their own customers, or individuals who have their businesses (or source of legitimate income) registered with the bank. This could be through some sort of financial instrument employed in the past or present. In addition, depending on the level of the financial relationship (or net worth invested) within the bank, the bank may offer preferential rates.
4. Going through the underwriting fine print
It is important to study the details of the loan agreement so that the borrower understands the terms of the personal loan. Details such as the early settlement clause, installment due dates, and late fee payments are critical components in the decision-making process.
5. An individual’s credit score is determined by a range of factors; such as their financial history of settling the debt, source of income and cash flow status, and their propensity of settling dues on time. Building a good credit score may take time but is a good option to ensure loan approval and preferential rates.