Obtaining a loan for whatever reason can be scary when you don’t know what is involved or how you need to go about the process. Each loan application will vary depending on the financial institution you apply with, but the procedure is mostly the same with any loan.
If you are consolidating debt, renovating your house, or you need a bit of extra cash flow to get through the next few months, there are specific things that you need to watch out for. This biggest will be your credit score and proving to lenders that you can afford to pay the loan back. Read on for a simple guide to fill out any loan application.
Choosing the Right Type of Loan
Depending on the amount of money you need to borrow, there will be different types of loans to choose from. Personal loans are for debt consolidation and times when you need a bit of financial help. Other loans for purchasing a house and car work differently, because they are more long-term loans. Personal loans mostly run for about five years or less, while you can expect to make monthly repayments for the next decade or two for a house or car loan.
Each type of loan will have varying terms and conditions, down payments if they are applicable, and different interest rates. It’s vital that you first research the type of loan to choose the right one before you begin the process. For more advice from experts, contact Payday UK. They are a registered credit broker represented by the Flux Funding Limited company, who specialise in helping people find the credit they need, and services include assistance with the application process.
Confirm Your Credit Score
Every financial transaction that you have processed is captured by the credit union. Any debt, monthly debit orders, and your salary details are captured and given a score based on how diligent you are with paying your accounts. It can take anywhere from eight weeks to a few months for your credit score to be updated. This means that if you have recently paid an account off, it may not reflect for some time. You will need to query this and process a ticket to have your credit score assessed.
One important thing to keep in mind is that every single loan application is recorded on your credit score. It can negatively affect it if you put in too many requests. If your application is denied, you have to wait at least six months before applying with another lender. Before you fill out any loan application, have your credit score and history checked by the union to confirm everything is up to date with the latest account information. Once this is on track, then put the loan application through. You have a better chance of being approved the first time around if all of your details are accurately captured.
Apply Based On Your Income
It’s tempting to take out a loan that is bigger than the initial amount you needed, but you need to consider your future monthly expenses. Although some lenders offer the first month interest-free, it doesn’t mean that interest has been removed;it will be added on later. If you understand your income, expenses and have a decent budget set out, you will know what you can realistically afford to pay back every month. Take into account how many months or years you will be paying back the lender for the loan. If you cannot guarantee your financial situation will remain stable for the next few years, you need to rethink the application.
To protect you, most lenders will have a minimum income requirement before they agree to loan you the money. Recalculate your budget and choose to rather pay a bigger amount each month for a shorter period than small instalments for many years. If you have any additional income or financial assistance of any kind other than your normal salary, this needs to be disclosed as well. Some lenders will allow you to bypass this step and they may not even ask for certain information. The downside is that the interest rate will be much higher because of the additional financial risk to the business.
Capture Honest and Reliable Information
The smallest discrepancy can cause your application to be rejected. Filling out a loan application means you are providing your details, income, employment history, and sometimes even medical records. Depending on your age and health, a lender may not be willing to loan the amount you need as you pose a risk of not paying the full amount plus the interest back. All loan applications will take some time to fill out and you may need to go back and forth for a few days before you complete them. This is because the lender will ask you many questions that require specific details.
Your bank statements will need to be included with your application, as well as a pay stub or weekly cheque confirming your income. Contact details and physical addresses need to be accurate, as well as if you have been blacklisted before or denied loans in the past for whatever reason. If you don’t disclose this information upfront, it could put a bad record on your name. The lender is taking a risk on you after all.
Provide Relevant Documentation
When you fill out a loan application, you need to already have your documents in place. This includes identity paperwork such as a driver’s license or any other government-issued ID. If you are a foreigner, you will need a passport and proof of citizenship. You will also need to provide a valid residential address and proof of such. This normally needs to be certified or approved with an affidavit, but only provide copies and keep your originals safe.
Again, your financial details such as proof of income and tax contributions along with statements from the bank and other providers you hold accounts with will need to be provided to the lender. If you are a freelancer or self-employed, you have to rely on bank statements and the relevant income tax return forms SA100 or SA200 for the UK region.
Next Steps
Now the waiting process begins. It shouldn’t take too long for the financial institution to validate your details and get back to you with a response. If you are denied, don’t be upset. Most lenders work with computer systems that automatically determine the amount of risk posed to them. These systems can reject applications for several reasons. To get approved next time, ask the lender why you were denied and try applying somewhere else in six months. Try applying for a smaller loan amount next time.
If you are approved, it’s time to start paying the monthly instalment back. If you pay a little more each month, you can cut down the interest much quicker. With most loans, in the first year you will just be paying the interest off on the loan.
Now that you have a deeper understanding of filling out a loan application, it’s time to research which facilities offer the best interest rates. If you can, pay off smaller debts before you apply so that you can improve your credit score and receive better terms and conditions.