Borrowing money can be a tricky business. When borrowing money, it is important to know the nature of how the loaning business works, including when to engage with it, or when to avoid it. By understanding the loaning industry, you can make more informed decisions about your financial affairs.
Loans defined
A loan is money, property, or other material goods given to another party in exchange for future repayment of the loan value or principal amount, along with interest or finance charges. A loan may be for a specific, one-time amount or can be available as an open-ended line of credit up to a specified limit or ceiling amount.
Corporations, financial institutions and the government typically issue loans. So why do these institutions let people borrow money? Loans allow for growth in the overall money supply in an economy and open up competition by lending to new businesses. In fact, Nimble quick loans online help by making finance faster as they make borrowing money and having access to Cash Loans easy for everyone. In addition, Loans also help existing companies expand their operations. The interest and fees from loans are a primary source of revenue for many banks, as well as some retailers through the use of credit facilities and credit cards. They can also take the form of bonds and certificates of deposit.
Related: Looking for the best credit union home loans? Check this out.
Loan Qualifications
Getting a loan means you have to be qualified for the loanable amount. Here are a couple of items you have to check for you to be qualified.
- Income – Your income is your ticket to be able to pay for your loans, which is the reason why nearly all lenders will require evidence for a steady source of income. This is to make sure that you, as the borrower, will have the ability to pay your debt regularly and in a timely manner.
- Employment – There are some lenders, which will require evidence for proof of employment, while some lenders will just require a national or government ID. Nonetheless, employment has a positive impact to increase your chances to be qualified for a loan. In addition, some lenders would even go deeper and ask your job title, especially if the loan amount is pretty significant. They do this for the following reasons:
- Some lenders cross-reference your job title with your salary to as a protection against fraud;
- Some lenders use your job title for interest rates. For example, in the same loan amount that a doctor and an admin worker would like to borrow, the doctor may have higher interest rates.
- Credit History – Making sure that your credit history is excellent and flawless is with a solid history is a crucial factor for being qualified for a loan. You have to make sure that you pay your credit card ahead of time and that there is no missed payment or loan defaults because this is the easiest way for money lenders to track your financial history and capability, and make decisions whether you qualify for a loan.
- Assets, Debts, and Expenses – In your loan application, you will be asked to list down all your assets, debts, and expenses. Lenders would then have the process to use your debt and income to calculate the loan amount you are qualified for. More income increases your chances for to qualify for a loan, while debts such as credit cards, store cards, and other loans can hinder your application. Expenses are always estimated, but lenders generally have a good idea when you’re under- or overestimating based on the data of other customers.
How do Loans work?
The terms of a loan are agreed to by each party in the transaction before any money or property changes are disbursed. If the lender requires collateral, this requirement will be outlined in the loan documents. Most loans also have provisions regarding the maximum amount of interest, as well as other covenants such as the length of time before repayment is required.
What are refinance title loans? Refinancing means replacing a current title loan debt with another to get different terms. You can either refinance with an existing title loan lender or find a new lender with better terms.
Be a responsible borrower!
The loaning industry is based upon the principle of integrity. If you find yourself in the situation where you have loaned money, you should be able to follow the guidelines below to become a responsible borrower:
Build a solid foundation
Establishing rapport is essential in any relationship, including a loaning relationship. By networking and establishing a good working relationship with your vendors allow you to build your loaning credibility. You may even be able to avoid taking out loans entirely if you can secure better terms and negotiate repayment with each vendor.
Use a loan calculator
Being financially-savvy will also help you understand how much money you need, including your paying capacity, as well as the term or duration of your loan amount. Loan calculators can help you out so you will be aware of what amount of money can you borrow and pay based on your financial plan.
Know your debt-to-income ratio
Your debt-to-income ratio is a comparison of your annual profit to your annual debt. You are in good shape if your ratio is 1.0 or greater. This means that the better the ratio, the higher the chances of qualifying for a loan. The debt-to-income ratio is also a good indicator that if anything below 1.0 means that you are spreading your income too thin and that you should reconsider taking any additional debts.
Use a financial cushion
Before you take a loan, make sure that you have at least six (6) months’ worth of savings so that if anything goes financially wrong, you still have the capability to pay for your debts.
Draft (and stick) to your financial plan
Making a financial plan to make sure that your income is allotted to the correct priorities (including paying your debts) is one of the most salient qualities of being a good borrower. One money management trick is the jar model which can help you manage your expenses.
Borrow only when you need to
As much as possible, only borrow money when you are in a dire situation. Having no loans is better than being swamped in debt. You have to understand that sometimes, loans are not the best answer to your financial problems. You can check other solutions such as increasing your profit margin or reducing your expenditures.
Pay on time
Open and honest communication is key to being a good borrower. Make sure that you pay your debts in a timely manner and as scheduled. If for some reason, you cannot pay on time, be honest and call your lender.
Being a responsible borrower ensures you to build your credibility not just in the financial aspect but by being a person with integrity. The bottom line is to only borrow within your paying capacity and be timely in paying your debt.