There are different types of personal loans a depositor can take from
his bank. While some loans may not be tied to specific purposes, others
may be for certain projects such as business, mortgage and car purchase.
The
lender will also ask specific questions from the borrower to be sure it
will not turn to a bad debt. Borrowers should understand the conditions
of taking a bank loan in order to avoid running into problems.
The following are major things a borrower should understand about bank loans before applying for one.
1. Understand your preferences:
Before heading to your bank, check out loan packages and see what
competitors are offering. You need to be aware of what kind of loan you
are looking for, the terms you can reasonably afford, and your goal for
paying off the loan as fast as possible. If you are looking for a
specific type of loan (auto, mortgage, personal) make sure you find the
best deal for you.
2. Ask questions: When you find the
loan package you are most interested in, contact the bank directly to
find out upfront what the requirements are for loan eligibility. You may
need to make an appointment in person to discuss the necessary
materials, documents, and timelines you will need to get started on the
approval process. Banks have different requirements and it will be
important to know what they are upfront so you can be prepared.
3. Application: You need to apply to your bank to get a loan, stating the purpose, with enough evidence that you will repay the money.
4. Interest:
Personal loan is a lump sum, which a bank gives a customer to be repaid
in instalments with interest over a period of time. The loan can be for
a year or over 10 years. Banks charge interest rates per annum.
5. Terms of agreement:
It is very important to read all the terms of your loan before taking
it. There may be some clauses, which you may not be expecting such as
the possibility of the bank increasing the interest rate after taking
the loan, among other things. The terms and conditions will show you the
actions that the bank can take against you if you are unable to repay
the loan on time.
6. Collateral or security: Banks usually
ask for collateral before granting loans which could be landed property
or other specific assets. When the bank is not asking for collateral,
it will definitely ask for another form of security that could be a
guarantor or the loan may be tied to your salary. You may lose your
asset if you fail to repay the loan.
7. Hidden charges:
The interest rate may not be the only thing you will be required to pay
along with your loan. Banks may have some other charges such as a fee
for processing your loan and charges whenever you default in your
monthly repayment of the loan. So, it is important to know all the
hidden charges. You can ask your account officer to explain these extra
charges.
8. Loan restructuring: You can approach your bank
to negotiate the possibility of restructuring your loan if you are not
comfortable with the terms. You don’t necessarily have to wait until you
have problems with the repayment; you can still negotiate when you are
already paying your debt.
9. Credit card: Applying for
loan may not be the only option available to you. If you need a short
loan, getting a credit card may also be useful. You, however, need to
understand how to apply for a credit card and have a good credit score.
Depending on the bank, some may give you an interest-free credit for
your first usage.
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