Before you apply for a loan, you need to be sure that you will be approved. A rejected application has an impact on the chances of qualifying for subsequent loans. Why? Well, there are different ways in which you can be affected. First, a rejected application will be reflected on your credit, and this will be a red flag to other lenders. Second, any time you send for an application, lenders make a hard inquiry on your credit. This has an impact of temporarily lowering your credit score. With less than stellar credit, you can hardly be approved for loans. You cannot negotiate for better terms with bad credit.
When applying for a loan, financial prudence is critical. This means the loan should better your financial condition. For this reason, financial experts advise borrowers to always shop for interest rates, perhaps using a directory like Smarter Loans to help you get a really good idea of the options that are available to you. The price that you pay for using borrowed money is what we refer to as interest rates. A high-interest rate is beneficial from the lenders’ standpoint because it indicates higher profits.
On the contrary, a higher rate means the loan is so expensive for borrowers. In general, borrowers will be happy to get loans at lower rates. Since different lenders charge different prices for the same loan amount, rational borrowers will take time to compare loans online and shop for the interest rate.
Indeed, the interest rate is one of the main factors for consideration when applying for loans. Nevertheless, other terms need to be considered when applying for loans. It is possible to have a loan at a lower rate, but other terms of lending make it inappropriate.
Still, some loans are advertised at lower rates, but lenders charge other costs that may end up making it expensive. The interest rate may be favorable, but you still not qualify for the loan. And therefore, the question is – what factors other than rate should you consider before choosing a personal loan? Here are the basic ones.
Whether you meet the requirements
Not anyone can apply for a personal loan and get approved. There are common requirements that all borrowers are supposed to meet. The first thing you need to take into account is whether you meet the necessary requirements to be approved for a personal loan.
Here are some of the basic requirements that all borrowers are expected to meet.
- Be of legal age
- A steady job or a regular income
- Details concerning your current situation.
These are the basic requirements that you need to meet before approaching a lender. While there are some loans that you can qualify without having a steady job or income, much is always required.
The purpose of the personal loan
Why are you applying for a personal loan? You must have a solid reason for applying for an emergency personal loan. The reason for applying for the loan can mean approval or denial. The loan officer must be convinced that you really need the loan and that the funds will be used in the best way. The loan officer has to convince the review team that indeed you need the loan, and that is why the reason for applying for the loan must be convincing. Also, there are different types of personal loans, and each one of them must be used for specific purposes.
A personal loan may be secured or unsecured. A secured loan requires collateral. You need to secure the loan with a valuable asset. In case you default, the lender can seize the property and use it to regain the outstanding loan balance. An unsecured loan does not require collateral. The purpose of the loan should suit any of these two main classes of personal loans.
Other related fees
As we stated at the outset, the interest rate is an essential factor for consideration when applying for a personal loan. However, it is imperative to examine other related fees. Many lenders attract borrowers with lower interest rates but charge additional fees that may end up making the loan very expensive.
The following are some of the common expenses that lenders often charge
- Early payment fee
- Late payment fee
- Origination fee
- Insurance
- Withdrawal fee
Take time to examine these fees. Before signing the contract, make sure you understand the terms of the loan and all the associated fees. According to the Singaporean laws, it is the responsibility of the lender to explain to the borrower the terms of the loan using a simple and understandable language. So, ask about the fees.
The loan duration
The life of the loan is a critical factor for consideration also. The repayment period for most personal loans often ranges between 1 and 5 years. You need to examine your financial position and go the loan with the most appropriate repayment terms. Do not accept a very short loan term if that will make it difficult to keep up with the payments. Also, an extended repayment period may mean paying a lot of interest.
How you are going to repay the loan
Do you have a solid payment plan for the loan? If the answer to this question is “NO,” then do not apply for the loan. It is vital to plan on how you are going to repay the loan before applying. How do you intend to repay? On monthly or weekly terms? Will you prefer repaying earlier than expected? These are the critical questions that should guide you in choosing the best type of personal loan.
The Bottom Line
While interest rate plays a significant role in choosing a personal loan, there are other essential factors that you need to consider as well. We have discussed five of such factors. Examining these points will help you get the best loan. However, the golden rule here is – do not borrow more than what you can afford. Even if you qualify for more, apply just for what you need and not more than that. The next blog will discuss how to get the best personal loan in Singapore. Meanwhile, check here some of the best lenders you can deal within Singapore. Thank you!