A consumer loan can be the thing to help you scale a financial challenge, pay off a current debt faster, or finance an unplanned expense. With different types of loans to pick from, you can always find one that will suit the exact purpose you need the funds. Consumer loans irrespective of their purpose often have similar processes. Knowing the steps involved can go a long way in helping you make the process as smooth as possible and even save money further down the road.
Although applying for a consumer loan is relatively easy, without the right knowledge, you may encounter certain things that may unpleasantly surprise you along the way. This is why we have written this article to help you know things to expect when applying for a consumer loan. Here, we will discuss the steps you need to take to apply for and get a consumer loan hassle-free.
1. Consider The Numbers
Before you apply for a loan, be sure of the numbers. The first number you have to be sure of is the exact figure you are looking to borrow. Knowing this figure will help you figure out a lot of things. Let’s give an illustration. Assuming you want to get a loan of 50,000 Nok or as the Norwegians say, lån 50000, you can use this figure to calculate other important aspects of the loan like the interest rate.
Knowing the exact principal amount, you need from the get-go will make it easy for you to estimate the interest rate and even the annual percentage rate. A consumer loan calculator can help you estimate not just the interest rate, but also other important fees. Considering the numbers is a very essential step as it will help you figure out whether or not you can afford the debt. This way, you’ll know what you are signing up for from the get-go.
2. Evaluate Your Credit Score
One of the ways lenders check borrowers’ creditworthiness is by evaluating their credit score. If a borrower has a poor score, the lender may doubt their ability to pay back their debt and may refuse to approve their application for this reason. Therefore, before you apply, evaluate your score by yourself to see if you can qualify. Most lenders expect borrowers to have a fair credit of about 580 to 669. A higher score above 670 is a great indicator of a borrower’s creditworthiness.
This would not just ensure the borrower application gets approved, but it can also help them get the best interest rate out there. Therefore, check your score, and see if it’s enough to get you approved. If it isn’t, find a way to improve it before submitting your application. This way, you’d have increased your chances of getting the approval.
3. Find The Best Option For You
If you have a low credit score, you may not be able to improve it fast enough to apply and get the funds you need. In this case, you would have to find alternatives that would boost your creditworthiness. One of the best alternatives for people in this case is co-signing. Co-signing involves getting someone else with a great credit history and score to co-sign on the loan. Not every lender allows this, but you’ll likely find one that does when you search.
However, it may not be easy to get a co-signer because some people may have been advised not to co-sign because of the risks attached to it. A co-signer typically acts as a guarantor for you; in the case where you cannot pay back what you owe; they will be required to pay off your debt for you. If you have difficulty finding a co-signer, then you can consider backing up your debt with security. There are two types of consumer loans: secured and unsecured loans. A secured loan unlike an unsecured one requires collateral that the lender can claim if the borrower fails to pay back their debt. Secured loans offer lenders security and mitigate the risks they face when they lend out money.
So, if your credit score is poor, you can prove your trustworthiness by offering security. Another good thing about secured loans is that they can help you negotiate better terms. However, know that if you fail to pay back what you borrowed, your asset will be seized.
4. Decide On The Loan Type
There are different types of consumer loans depending on the purpose. Some lenders do not mind whatever you want to use the money for while some may not be that flexible and would only approve applications for certain purposes. This is why you need to decide on the type so you can get a lender that’ll approve the exact type you need. For instance, let’s say you want the funds for debt consolidation.
One lender may not want to give out funds for that reason, while another one may approve. So, figure out the exact reason you want to borrow the money. You can then use this information to streamline your search when looking for a lender.
5. Shop Around And Select A Reputable Lender
The next step is to look for reputable lenders and get offers from them. Your goal is to look for a trustworthy and reputable lender and not one that will end up swindling you using bad practices like hidden fees. So, take your time to vet the lenders you’re considering and find out what past customers have to say about them.
Once you have gotten about 3 to 5 reputable lenders, go through the prequalification process to get an offer from them. Consider all the offers and look out for factors like repayment terms, fees, and interest rates. Use these factors to figure out the best offer.
Now that you have found the best deal and lender, it’s time to submit your application. Depending on the lender, your application may be done in person or online. Regardless of the method used, you will be asked to provide certain information like your name, contact info, address, employment info, income, and the purpose of the loan.
You may also be asked to submit certain documents mostly for identification. Ensure that you follow all the necessary instructions and steps. This application is often straightforward, and you likely won’t have any issues following through with it.
7. Accept The Terms And Start Paying Back
As far as you followed the steps so far, your application will likely be approved. When this happens, you will then accept it so you can get the funds. Typically, after accepting, you will get the funds within 1 week; some lenders (especially online ones) will even disburse the funds to you within 1 or 2 days. After you get the funds, you will start paying off the debt monthly according to the terms. Ensure you keep track of your payments to avoid getting behind. If you fall behind on your payment, you can end up putting a dent in your credit history.
Applying for and getting a consumer loan depends on a lot of factors. These range from your creditworthiness to your ability to find the right options and lender for you. However, all these have been simplified in 7 easy-to-follow steps in this article. Now all you have to do is follow these steps and get the approval you want.