Frequently asked questions on loans
Loans help an individual make an immediate purchase of items such as automobiles and electronics, plan for a second home, a marriage, or further studies. It is the aid required to tick things off your bucket list a little more easily. It is very easy to get loans nowadays. But before you are granted one, there is a set of checks and balances you must go through and a lot of factors you must consider. It is crucial to evaluate all the options and then make a suitable choice. This article answers certain doubts most people have at the prospect of applying for a loan.
How do you know whether you will qualify for the loan or not?
- You are probably going to hurt your own credit by applying for a loan you are doubtful to get.
- It is just like when you get declined for the personal credit card, it only makes it more difficult to borrow in future.
- It is suggested that you ask the lending organizations about their specific requirements before applying for the loan.
- Many of them will inform you about the minimum credit score they require as well as the cash flow you need to show and other qualifying factors.
How do I decide the loan amount I need?
- Before you actually approach a bank for the loan, be sure to have a good idea of the amount you actually need.
- The best way to ensure this is to create a monthly cash-flow projection.
- You should know how much cash you actually require and how you will be using the funds before approaching the bank for a loan.
What are the other charges incurred?
- It is not only the interest rate which is borne by the borrower.
- A loan may also have a processing fee or administrative fee, which could be either a fixed amount or a certain part of the loan amount which can range between 1.5-2%.
- Plus, you need to consider if the bank charges an application fee.
- Especially in the case of home loans, some of the banks claim that they do not charge any ‘processing fee for work done by the bank’ which actually means that you will end up paying the valuation fees, stamp duty, and lawyer fees which in turn increase the cost.
Do you get free insurance?
- Some banks also offer free insurance coverage along with the loan.
- For example, if the borrower needs a home loan he/she will also get a free insurance cover.
- In case of a personal loan, private banks sometimes insist for a loan cover to be taken.
- Such cover on loan is useful when someone faces a financial crunch as well as ensures repayment if the borrower dies.
How much can you borrow?
- The amount you can borrow at one time varies from bank to bank. .
- It is dependent on a range of factors which includes your income, your liabilities, living expenses, your credit score, and also on how you are planning to use the loan.
- You must also consider whether taking a loan is the best option for your needs.
- It is always best to take an advice from a professional if you are not sure about whether taking a loan is right for the goal you are trying to achieve.
How is interest charged on a loan?
- The interest charged on your loan will vary from lender to lender.
- It is often affected by the factors such as the prevailing market interest rate, your loan type, that is, whether it is fixed or variable rate structure and the term of your loan.
- By knowing how and when is interest charged, and how it will accumulate on your loan, it is possible for you to minimize the amount of interest you pay in the long run.
How often can you make repayments on your loan?
- Sometimes banks may offer you a choice to make repayments in weekly, fortnightly, or monthly installments.
- A fixed-rate loan structure in which you are committed to paying the required regular payments does not allow for flexibility.
- Sometimes additional payments are also incurred on fixed-rate loans as an early repayment fee and/or a break fee.