applying for a loan

Applying for a Loan? Follow This Guide

Did you know that 27.34 million people in the U.S. had a personal loan by the third quarter of 2015? And that 17.41 million people lived in a household with someone carrying a personal loan in 2017?

These numbers show that American consumers now feel more confident in once again becoming borrowers. After all, it’s a reflection of the economy’s improved state, which means more stable consumer finances and stronger employment rates.

But this doesn’t mean you should just go ahead and secure every loan offer you get. Applying for a loan requires careful planning and in-depth research, since you want to make sure you get the best interest rates. There’s also the matter of ensuring you don’t overestimate your financial capabilities.

And that’s what we’re going to discuss in this post. Check out (and follow) the loan tips in this guide to help you make the right borrowing decision!

Is It an Expense Worthy of Paying More in Interest For?

Whatever your reason for needing a loan, think twice, even thrice before applying for one. If it’s something that can wait just until you get your salary, then it’s best you do. Besides, there are several other things you can try first, like take on a part-time paid project or sell some of your stuff you no longer use that others still can.

But emergencies can happen. And they can occur when you least expect them to.

Bills also arrive one after the other. They stack up on those you already need to pay in a few days. Soon enough, you realize you don’t have enough to make that car loan payment.

In this case, then it may already be in your best interest to take out a personal loan.

Don’t worry. Even if you have a less-than-stellar credit score, know that you can still qualify for certain types of financing services. A good example is a $2,500 installment loan. Read more now about this loan.

The key to safe borrowing is determining whether your reason is worth the loan, particularly the added expense of its interest rate. If it means saving yourself from the hassle (and other fees) of having no electricity or water, then by all means, consider applying for one.

How Much Do You Need?

How much you should apply for will depend on how much you need – avoid taking out something way higher than what your actual requirement is.

Here’s an example using the most common reasons American consumers apply for loans:

You need to pay your utility bill, averaging slightly higher than $170, a few days before your next salary. You also need immediate major car repairs, which can go anywhere from $500 to $600. There’s also that bill of $55 for your phone, and another $65 for your Internet service.

On top of that, your fridge is empty, so you need at least two weeks’ worth of food supplies. Using estimates from the USDA, a safe amount for a family of two is about $290.

Sum all up together, and you’re looking at $1,080 to $1,180 of funds you need access to ASAP. But, your considerations shouldn’t end there.

If you’re like 39% of Americans, chances are you don’t have anything at all tucked away for emergencies. Although we did say something about borrowing only what you need, you should still consider how long before you get access to free-spending cash in case of an emergency.

How About Borrowing Amounts?

Most personal loan lenders offer amounts ranging from $2,000 to $50,000. Some even offer loans up to a whopping $100,000. That doesn’t mean you’ll instantly qualify though. Lenders still use a variety of factors, like credit score, borrowing purpose, and income to gauge an applicant’s qualification.

Like loans from banks and credit unions, you’ll also find that the higher your credit score is, the more you can borrow. And the lower the interest rate you’ll have to think of.

Keep in mind that even if you qualify for say, $10,000, it doesn’t mean you should. Calculate first how much you can actually afford before taking the offer. Consider your monthly income and the most important – and urgent – expenses first before you start thinking of a lavish and luxurious holiday.

Remember, there are several other things on your list of financial responsibilities, including your mortgage, your kids’ tuition, and insurance. So as tempting as that $10,000-loan offer may sound, restrain yourself unless you know you can easily afford paying it back.

Explore Options and Lenders before Applying for a Loan

Considering that all consumer loans in the country amount to $1.38 trillion, this means you literally have hundreds of loan options and lenders to choose from. This is why you shouldn’t settle for the first offer you get. Nor should you easily give up when the first lender you talked to rejected your application.

Again, while many loan lending institutions prioritize borrowers with a good credit score, you’ll still find some offering their services particularly to people with bad credit. Prepare yourself to pay higher in interest though, especially when you take out a payday loan. But if it’s an expense worth the higher interest rate, then you just need to make sure you find a loan offer at the most reasonable rate.

The only way you to ensure the best possible deal is to compare offers. Even just a 1% difference in monthly rates is already a deal-breaker, since that can mean saving $25 on a $2,500 personal loan.

Keeping Your Finances Intact to Reduce Need for Loans

It’s true that most of us would need a personal loan at some point (even multiple) in our lives. Applying for a loan isn’t necessarily bad, but as much as possible, you’d want to start saving now. It’s a lot better and comforting to know you have savings you can turn to in time of emergencies.

Start building your savings account as soon as possible with more of our financial and loan advice. Feel free to head over to our finances section to check more of these strategies!