Life happens when you are busy making plans. Sometimes those plans are not always financially possible with our current salary or savings. That is why banks or other financial institutions have created Loans.
Simply put loans are borrowed money that is readily available to you for home remodelling, debt consolidation, weddings, emergency expenses and so much more. Loans are a different option from repaying credit card debt. You need to pay fixed-amount instalments over a set period of time until completed. These days you can even get loans without bank statment
Loans can also be a risky move if you don’t approach them in the right way. The interest can be too high or the repayment isn’t realistic enough to accommodate your current salary. These factors you need to take into account to keep you out of financial trouble.
We compiled handy tips to get you well on your way toward your dreams or financial freedom.
Make sure to take out a loan from a credible financial institution
Nothing can be more devastating and embarrassing than realising you have been scammed. Your stomach drops and your dreams are shattered. You find yourself in a worse financial situation than you were.
Be sure to do your homework when making such a big financial decision. A credible financial institution is required to meet licensing and conduct requirements set by the Australian Securities and Investments Commission.
Maintain a healthy credit score
Your Credit score is based on information in your credit report. This is your history of borrowing and whether repayments were made on time. The impact this has is if you have a low credit score, you may be seen as a higher risk.
Some lenders may be reluctant to give you a loan or the interest rate won’t be so favourable. The higher your score, the less risky you are considered to be, and the more likely it is that you will be given a loan with better terms and conditions. Maintain or improve your credit score before applying for a loan.
Choose a loan with the lowest interest rate
An interest rate determines the cost of borrowing and how much you will pay back to the financial institution. Interest rates in Australia are determined by the RBA. Their objective is to ensure that inflation remains low and stable.
The lower the rate the less you have to pay back and will be over a shorter period of time. Some financial institutions do over more loans with lower rates to encourage borrowing. When choosing a loan, make sure to choose the loan with the lowest interest rate possible.
Assess the need for a loan
A loan you can’t afford isn’t in your best interest. You have to be sure you have a reliable income covering your expenses. If you are not able to afford the payments, it can have a negative effect on your credit score.
The amount you have left should be enough to pay the monthly instalments. Read carefully and make a list of what’s required. Make sure everything is legal and fair. Don’t sign anything you don’t understand. Check the timeline it needs to be submitted and how long it takes. This will give you adequate time to prepare and manage your expectations accordingly.
Get rid of your existing debt
Think of it like this. When you prepare to cook a delicious meal you don’t do it in a messy dirty kitchen. Oh no! You make sure you got a surface that is clean and all the cooking items are all washed up. Applying for a loan is basically the same concept.
Be sure the get rid of all your existing debt. This gives you an advantage in serval aspects. Your credit score will improve, the amount you can lend will be much higher and the most important of them all is. It will be a lot easier and faster to pay off your loan with all the extra cash laying around.
Conclusion
Don’t let applying for a loan get a bad reputation. Life happens and we need to take action. We need to be prepared. From buying a home, starting a business or covering expensive medical bills you didn’t see coming. However, when it comes to our credit we need to be responsible and sensible. A loan is a helpful tool to reach a financial goal. Following these helpful tools, will set you up with the best outcome when applying for a loan.