What To Do Before You Get A Loan: A Checklist

Posted January 18, 2022 by in Lifestyle
Decorative illustration of money box and arrows

Getting a loan is a significant financial decision. The stakes get significantly higher if you plan to borrow a larger amount. However, despite the many responsibilities of acquiring debt, many still apply for them. After all, loans are helpful for large purchases and emergencies.

In a 2019 survey, 73.2% of Canadians had outstanding debt or used a payday loan in the past 12 months. Thirty-one percent believed they had too much debt. 

Borrowing money is a common practice, especially with the wealth of options we have now. Aside from banks and physical institutions, you can choose to get your loan online. But before you run and get one, consider this checklist first. 

Do Your Research

Before signing any dotted line, make sure you’ve done your due diligence. Not all loans are the same, and you’ll have to know the particularities of each. There are different types of loans for specific purposes. 

For example, you can get housing loans, student loans, and auto loans, among others. These can be either secured or unsecured. Secured loans require collateral, while unsecured loans do not.

Knowing what type of loan you’re applying for allows you to assess its benefits and risks. This helps you make smarter decisions and get the best option for your needs.

Compare Lenders

Not all loans are equal, and the same goes with lenders. Different lending institutions can have varying processes and requirements. For example, applying for a bank loan is entirely different from borrowing from a friend.

You also have to pay attention to the interest rates. You have to deal with this the entire time you have to pay for your loan. If you can, shop around and compare different lenders. Sometimes, you can get a better deal once you do more research.

If you have the time, use it to find a lender with the best rates and payment plans. Lower interest and good customer service can help make the payment process more bearable.

Look At Your Credit Score

Depending on where you plan to get a loan, your credit score might matter. This is especially true for more considerable sums from banking institutions. Lending money involves risk, and your lender would want to guarantee that you can pay off your debt.

A good credit score means an easier time getting a loan. However, if your credit score isn’t as good, you’d want to build it up first before applying. You can do this by making purchases on credit and paying them on time. 

Some lenders are willing to skip the credit score check for smaller, personal loans. Still, it doesn’t hurt to keep it up if you can.

Know Your Budget

When getting a loan, the number one tip is only to borrow what you can afford to pay. It’s common sense. This principle helps you make timely payments without having to suffer too much.

If you cannot afford your monthly installments, you could end up with late payment fees, so you have to pay more. Worse, not paying your dues might damage your credit score or get you in legal trouble.

Factor in your loan payments in your monthly budget and pay your dues as soon as you can. This avoids the pileup of fees and keeps you in the clear.

Loans don’t have to be intimidating. Though they can be avoidable, they are a necessity in certain situations. But with the right plan and smart execution, you’ll be on top of your finances in no time.

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