August 16, 2023
One may find it hard to arrange lump sum cash in emergencies. Following this, one applies for a loan. However, one often fails to get on the first attempt. Why? It is because one skip reviewing and researching the best loans that one may qualify for with an existing financial situation.
Furthermore, the loan rejection impacts:
- one’s ability to apply again quickly
- Drops the credit score
- Finances if one fails to repay it timely
Therefore, before hitting the “apply button” for a new loan, identify- whether it is right for you or not.
For this, you must ask yourself some questions. Moreover, you should do it with every loan you apply for. It is regardless of whether it is a short-term or a long-term one.
The blog states some questions that may help you ensure quick loan approval with affordable terms. While you may be aware of some basics like-
- One should avoid making multiple applications
- Update Electoral roll
- Pay off some debts to improve your credit score
When it comes to the nitty-gritty, what else can help you get the right loan? Let’s analyse through the blog.
How to get the best loan for financial circumstances?
You may be eager to get the loan and meet your needs, but you must know a few things before that. If you often find yourself in dilemmas like:
“How much should I apply for?”
“Did I choose the right repayment term?”
The below tips for the loan application may help you overcome the confusion.
1) Secured or unsecured loan- choose right
Choosing between the two can be confusing. Secured loans are ideal for long-term loan purposes like- mortgage, home renovation, car purchasing, etc.
Alternatively, unsecured loans are loans both for long- and medium-term purposes like- needing instant cash for business needs, student loans, or short-term payday loans.
You can choose between the two by identifying the purpose you need for a loan.
For example, – If you need a loan for a car purchase, secured loans are apt for you. In this, the car act as a security on the loan. Until you pay the complete costs, you cannot own it. You can choose a used car or a new car loan. It depends on financial circumstances and needs. A used car loan is cheaper than the new one.
If you repay the loan regularly until the loan term, you can own the car by the agreement end. Alternatively, the lender can seize or claim the car if you default on the loan.
If you want to avoid the situation, you can opt for unsecured loans.
For example- Check guarantor loans for a non-homeowner from a direct lender for car repair or other purposes if you lack homeownership. In this, your fellow tenant or a non-homeowner with a good credit history and income can help you qualify for the loan.
As a matter of fact- “Secured loans are budget-friendly than unsecured loans. In this you get lower interest rates and get a higher sum than unsecured loans for your purpose.”
You can get up to £25000 as an unsecured loan. For the above amount, secured loans can be apt.
2) Identify the right amount to borrow
“About 65% of individuals end up borrowing an insufficient amount than they need.” It further leads to applying for another loan, paying extra fees and maintaining both repayments.
To avoid this, check out this simple trick to borrow:
- STEP 1- Identify the cash need
- STEP 2- Check how much you can dedicate from savings
- STEP 3- Borrow the remaining part
Alternatively, if you lack savings, borrow a flexible amount- (neither too high nor too low). Using a loan calculator, analyse the impact of increasing the borrowing amount on the finances. It will help you identify the right amount.
Note: The amount you want may differ from the one you qualify for per lender’s standard. Thus, he may ask you to amend the figure as per affordability.
3) Optimise your credit score
Once you know the right amount to borrow, analyse the Credit standing. Your credit score determines the following events: interest rates, repayment terms and loan approval.
Individuals having low credit score struggles with the following:
- Getting affordable loans
- Getting flexible and desired amount
- Desirable repayment term
Thus, to win better rates, prepare your credit score. Here is how to achieve so:
- Pay the debts
- Pay pending credit card bills
- Clear utility bill payments
- Update your Credit report by reporting the paid debts
- Remove your name from joint accounts not in use
Moreover, there always stays a threat of the loan getting costlier. It is due to the missed payments. If you skip a payment for whatever reason, it directly impacts the overall loan costs. Eventually, credit score falls.
Thus, to avoid this mismanagement, budget extra. Save an additional amount than the repayment one. It would help you cover up repayments even if an emergency surfaces.
4) Explore and choose the right loan APR
APR is the cost you pay on a loan per year. It includes loan fees, missed payment costs, and interest rate costs. A lender calculates the APR based on your credit score and income. The higher the credit score, the lower the APR. It implies- You pay less over the loan term.
While lenders determine the APR to provide you with the loan, you can choose it too. Determine the lowest APR before applying. Post that, analyse the eligibility criteria. It would help you understand the income and credit score requirements. If yours fall within that parameter, you can apply.
Alternatively, pre-qualify for loans and the lender would tell you the approximate APR you may qualify for. If it is higher than the compared ones, shift your focus.
Tip: Look for lenders offering the lowest APR with the flexibility of no-cost pre-payment. It reduces the impact of competitive APR and interest rates.
5) Choose the apt time to repay
After choosing the right APR loan, consider when you want to pay it off. A repayment term is the duration until which you pay the loan in instalments. To pick the right one, identify the following:
- Your income
- Your liabilities- bills and debts
- Impact on the interest rates you got
Choosing a longer repayment term implies high-interest rates and vice versa. Thus, pick one that aligns with your income and liabilities.
Note: Before finalising the repayment term, put emergency expenses and the economy’s impact on interest rate in the case of (variable loans) as primary considerations. Moreover, for Individuals with unstable income, short-term repayment is ideal.
6) Consider paying back early
Some lenders provide the flexibility to pay the loan early. It is ideal for individuals looking to improve their credit scores. If you opt for early repayments, you can:
- Save money on interest rates
- Cut through additional payments
- Improve your credit score
- Help you avoid the uncertainty associated with finances leading to late payments.
However, most individuals share doubts like-
Is it okay for my finances? Can it impact negatively?
Yes, it is not ideal for everyone and can impact your credit score negatively. It is in case early payments impact other aspects of finances like- utility payments, credit card payments, or a child’s school fee.
Note: Prioritising expenses are before overpaying the amount. It may hinder important life aspects that may lead to irreversible outcomes. The facility is only ideal for the one with good disposable income.
Thus, if you find yourself on the fence about whether to overpay or not, consult a financial expert like Florafinance. The experts would suggest you the best way given your finances and liabilities.
So, now you must be clear about some important aspects to check before applying for a loan. Including these, you can also check documents requirement. It would help you arrange these in advance and reduce the turnaround time.
Ellie Brown is a proud resident of the UK and love to be a content writer and editor for the last 9 years. Writing blogs and articles is her passion that one can explore at the top blogging platforms. Ellie holds a key position at Florafinance as the Senior Content Editor and Chief Loan Consultant, leading a team of more than 70 professionals. Ellie Brown covers the major aspects of the UK’s lending industry in her blogs and guides loan seekers who come at Florafinance to apply for a loan. She possesses the Post-Graduate degree in Finance and Investment.