You might be on a spot where you’re planning to get a loan but don’t know how to proceed with it. People take personal loans or borrow money for a variety of reasons, and we’ve learned the different aspects of that in our previous article – The Basics of Borrowing (link). Some of the concepts we will mention here were already discussed there so we suggest you check that out first.
The journey of loan applications could take a shorter or longer route– but either way, preparing and knowing the essentials will boost your chances of getting approved. Here, you will learn the basic application requirements, tips on how to get approved and some concepts on loan repayment to get you started with your application process.
So whether you’re taking a loan for the first time or have been rejected for several times now, find out the know-hows to easily succeed in applying for one. Before submitting that application, check out if the following is in order.
Let’s start with or organizing the paperwork and documentation of your loan application. Lenders have varying requirements so best to check with them what those could be. However, financial institutions are most likely to always look for the following:
1. Review your finances and think about your budget. Do you have other current financial obligations? Can you still afford to pay if you get a loan? If you have existing debts, try cutting down on a few of them first to avoid potential issues with the lender and your application. Contemplate if getting a loan is the best option for you at the moment.
2. Prepare the requirements ahead. The documents we mentioned earlier are the ones you possibly need but checking with the lender is one way to do it. It would also help to come up with a checklist just to be sure that all requirements are completely accomplished before submission.
3. Improve your credit score. One of the primary considerations to ensure your eligibility for a loan is your credit store. The higher the credit score, the better the chance to get approved. A good example is paying your bills on time and in full. If you want to learn how to build a good credit score, read here (link redirected to credit score part of the basics of borrowing).
4. Know the different types of loans. There are two type of loans – secured and unsecured loan – and borrowers like you should know the difference between them. Secured loans uses any of your owned prop erties as collateral in case you fail to repay the amount you took as loan. On the other hand, unsecured loans do not have any type of collateral so the lender won’t take any of your assets to settle your missed payment. The amount you can borrow for a secured loan is higher, while the interest rates for an unsecured loan are higher.
5. Do your own research. A lot of financial institutions offer personal loans and it could get a bit over whelming. After understanding the type of loan you want to get, carry out an extensive research to com pare. According to the Bangko Sentral ng Pilipinas (BSP), borrowers should consider the following when applying for loan: interest rate, loan amount, repayment period, and ease of application. From there, you can get the best offer appropriate for your needs.
6. Lastly, borrow what you can repay. Be more realistic with the amount you can pay back. A simple trick will help you do that – computing for your debt-to-income ratio. It measures the amount that should go to your loan repayment based on your monthly salary. For example, your monthly gross income is PHP 20,000 and the total amount of your monthly debt is PHP 4,945. Therefore, your debt-to-income ratio is 25%. As a general rule, it should not go higher than 40% or you will have trouble getting approved for a loan.
Almost there! Just a few more things to learn and you’re good to go. Once your loan is finally approved, the next step is to repay that loan. This is called loan repayment which is the act of paying back the money previously borrowed from a lender, both principal amount and interest, and occurs through a series of scheduled
payments. So how and where do you pay? With the onset of digital innovations, borrowers are now presented with a lot options to pay their monthly dues. You can settle your payment through any of the following methods: (1) auto-debit arrangement using your bank account; (2) mobile payment apps and online banking platforms where some lenders are enrolled as billers and; (3) over-the-counter which is the traditional way of loan
Additionally, you can also take a quick look at these concepts that will come in handy to make your loan repayment easier and more convenient.
– Early repayments can be arranged depending on your agreement with your lender. This could potentially lead to lower monthly payments or more flexible payment terms. It could be a partial repayment, where the outstanding borrowing amount is repaid. Or it could also be a full repayment, where the full amount is paid over a given period of time without paying for fees or interest.
– If you decide to cancel or withdraw from your loan agreement, you are entitled to do so within the first 15 days or also called as the “cooling-off period”.
– Payment extensions and grace periods including that of the Bayanihan 1&2, continue to incur
interests on a daily basis. Despite extension offers, accrued interest will still apply to all unpaid loan balances.