Are you Considering Applying for a Loan?
At some point of your life, you would have probably thought about applying for a loan. Maybe because you need just and extra economic push, or because you want to spend some additional money on doing something extraordinary. In any cases, you should inform well before making a decision on this matter.
What Is a Loan?
It is a lending you get from a friend, financial institution or a bank with some frames to pay back the money you are receiving. You commit to pay in the frame of a period of time, to the principal and interests, depending on the clauses you have settled with your lender.
There are several types of loans, your choice will always depend on the commitment and confidence you have on paying on time. Otherwise, the loan can become a serious problem for you and your family. It is very important to measure the consequences of failing in acquiring this responsibility in order to accomplish your goal, or accepting the possible losses you could eventually have.
In What Cases Should I Get a Loan?
Sometimes your savings will be enough to get covered all the expenses you have. But in some cases, this expenses are higher and there is no way for you to get them paid. This is the case of big purchases like a car, home, or a major expense like pay for college. It can be used also when you just need a start-up capital. Remember to ensure your loan by planning your payments. If not, you will get in a stressful situation. Think wisely about it.
What Kind of Loan Can I Get?
It depend on the amount of the loan you need, the institution which is giving you the loan, your allowance to pay, the time you will need to complete the loan payment, among other things.
Almost all banks are willing to give loans to their clients; it means a profit for them while you pay for the interests. They give some with low interest rates and others are very expensive at last. Once you have decided to apply for a loan, you need to take into account all these apparently subtle details; they will become an ally or an enemy in time.
It is important to know that some loans are secured, and some others are unsecured. It means that some banks will require you to have an asset or collateral for your loan. In case you are not able to pay on time your credit or loan, then the bank will take something off you; a property you have settled before in this case. In general terms, the collateral worth is equivalent to the amount you have received. These loans are generally higher than unsecured.
Unsecured loans mean lower amounts; let us say less than $5,000. One disadvantage you can find is that rates of interest are usually the highest. However, you can get them easily with no much paperwork and immediately. They have high interests because the bank does not have any asset to rely on in case you are not able to pay on time.
You can find personal loans. The credit history you have achieved until the moment you apply for a loan will certainly decide your chances to get one. If you have been punctual at paying your credit card statements, your former loans, and have showed you actually have a clean and satisfactory credit at your banks or any other commerce, then you are eligible for getting a loan.
Another way you can get a loan is through cash advances. Nevertheless, try not to use it unless it is not necessary. Your credit card company or others can give you cash in advance, but the interest rates are very high, extremely expensive at the end. Yet, if you are in a rush and you actually need to get less than $1,000 this can be a good chance for you. Just remember the rates are going to be exceptionally high.
On the other side, if you need a loan to accomplish College studies, then you could afford for student loans, they are very convenient since they will not start to charge you until you have obtained your diploma, if you are full time college student. The downside is that you could get a debt up to $100,000 and it will be difficult to begin the career with such a big bill to pay. The advice should probably be to study something you really love and will lead you to a successful career to allow you paying everything.
If you are looking for purchasing a home, then mortgage loan is the best option you have. The pros of this kind of loans leads you to get 10-, 15- or even 30-year terms. The payments are tax-deductible and they result in the lowest interest rates. In these cases, the asset to secure your loan is the house itself. It is also the most daring loan, since if you do not pay in a timely way, then the bank will take the house as part of the payment. You need to make certain on being able to pay.
There are some loans which are equivalent to mortgages ones. They are made over the mortgage you already have. It is equal to the amount you already own of your house and it is ideal for additions in your house, improvement, debt consolidation or any other big purchase you need to do. The advantage is that it is usually tax-deductible and the rates are low comparing to others.
All given options are for personal loans. However, if you are thinking on a small business, then you can rely on a small business loan. What you need to do is get prepared with all the paperwork to get it. You have to register the company and start the process of taxing, office, everything written and certificated so you seem reliable to the bank. Almost all local banks are willing to offer business loans, so you just need to get your business plan and go for it.
Another important fact about loans is the kind of rate, if it is fixed or variable. Fix means it will remain the same on time; variable will change in time according to the national base rate for loans. It will change the total amount to be paid at the end of the term you agreed with the financial institution.
If you are thinking on starting your own business, for sure you are going to need from a higher amount of money to start it. One of the biggest challenges to an entrepreneur or start-up business is to gather all the funds needed to kick it off. Moreover, the one who owns lots of money is of course, a bank. Actually, one of the main reasons most people approach banks, is to get a loan.
Even though, it does not mean it is an easy task. Trying to finance a new business can be a tough errand to do for beginners. Some of the entrepreneurs are lucky and perseverant enough to make the pre-approval papers done and get their goal to be selected for a loan. However, there are many rejected applications for one approved.
This situation has been changing over the years due to the potential small businesses have. Banks has become more open to help and offer this kind of loans in order to build strong business relationships with new small companies.
Even when getting a bank loan is not the only way to raise funds for a small business, it is the most common. You should make certain to explore and consider the pros and cons of them. There will always be some advantages and disadvantages you should think about.
Some Pros of Bank Loans for Small Business
Useful and accessible. Banks are always accessible; it means you can reach them easily day by day. Once you have become a bank client for years, they become familiar to you, the services get more personalized. That is the reason to consider the bank you have been working with for years.
Several Loan options. Almost all banks are always trying to offer different kinds of loans for their clients to help them set a new business. They get a good profit from the interest they charge on the loans. They use to offer options like standard business loans, term loans and many other personalized to the entrepreneur.
Non profit participation. Some investors are willing to provide a loan with the agreement of sharing ownership, right to change or influence decision making or sharing the profits of your newly set business.
However, with banks you will not face any of these disturbances. They just want you to pay your interest and it will be fine for them; it helps you preserve your prerogative to decide anything about your business.
Lesser interest rates. Even when you are being charged every time you purchase a new loan, it will be always better than other lending agencies or instruments like credit cards.
Benefits on taxes. One major advantage on bank loans. If you are paying a small business loan, you get a tax-deductible rate, since you are using part of your profits to pay it.
Nevertheless, there are some points you should also consider when making the decision of getting a loan. For example:
Slow and meticulous application process. As the bank needs to verify all the information given by you on your business before approving the loan, these processes can take a lot of time. Be patient.
Long prerequisite list to get the loan. Sometimes it is difficult or troublesome to get all these requirements at once, precisely because an entrepreneur is starting a business. Some papers are in standby, others take time to be ready. Therefore, many times it is difficult to meet all of them.
Risk of losing your assets. As most of the loans are secured with a collateral, there is a big risk to lose your goods if you fail the right time payment.
Predilection for running businesses. As credit history is very important to approve a new one, since they give reliability and profitability to the bank, new businesses are difficult to get the first attention and confidence from the bank.
Incomplete final amount. This is something you should take into account when applying for a loan. Most of banks grant up to 70 to 80% of the amount you applied for. This can be a problem for the entrepreneur who is counting with the full loan.
Awkward. Sometimes banks ask for lots of information you might think is not necessary. However, you have to overcome the difficulties and try to keep a good attitude and cooperate as much as possible.
These are some of the advantages and disadvantages you will find once you decide to apply for a personal or business loan in a bank. Get prepared to overcome all the difficulties and be positive in every step of the process.
How to Deal with the Loan
Once you loan has been approved, there are several things you should change about your habits, to get the best advantage and not being trapped on the fixed charges.
It will depend on the type of interest you loan has, fixed or variable. The first advice is to pay on time at least your minimum fee. And of course, if you can make an additional payment, you can do it. However, you need to evaluate your profits and see what is best to do. It is a long-term work to get familiar with the numbers and find the best way to cushion your debt.
You can use extra profits to make extra payments, try to do it at least once in a year if you can. Nevertheless, the most important is you can start a new way of earning money with the loan you received. That is why you should plan your financial activities to make of it a good investment.