There are different types of personal loans a depositor can take from his bank. While some loans may not be tied to specific purposes, others may be for certain projects such as business, mortgage and car purchase.
The lender will also ask specific questions from the borrower to be sure it will not turn to a bad debt. Borrowers should understand the conditions of taking a bank loan in order to avoid running into problems.
The following are major things a borrower should understand about bank loans before applying for one.
1. Understand your preferences: Before heading to your bank, check out loan packages and see what competitors are offering. You need to be aware of what kind of loan you are looking for, the terms you can reasonably afford, and your goal for paying off the loan as fast as possible. If you are looking for a specific type of loan (auto, mortgage, personal) make sure you find the best deal for you.
2. Ask questions: When you find the loan package you are most interested in, contact the bank directly to find out upfront what the requirements are for loan eligibility. You may need to make an appointment in person to discuss the necessary materials, documents, and timelines you will need to get started on the approval process. Banks have different requirements and it will be important to know what they are upfront so you can be prepared.
3. Application: You need to apply to your bank to get a loan, stating the purpose, with enough evidence that you will repay the money.
4. Interest: Personal loan is a lump sum, which a bank gives a customer to be repaid in instalments with interest over a period of time. The loan can be for a year or over 10 years. Banks charge interest rates per annum.
5. Terms of agreement: It is very important to read all the terms of your loan before taking it. There may be some clauses, which you may not be expecting such as the possibility of the bank increasing the interest rate after taking the loan, among other things. The terms and conditions will show you the actions that the bank can take against you if you are unable to repay the loan on time.
6. Collateral or security: Banks usually ask for collateral before granting loans which could be landed property or other specific assets. When the bank is not asking for collateral, it will definitely ask for another form of security that could be a guarantor or the loan may be tied to your salary. You may lose your asset if you fail to repay the loan.
7. Hidden charges: The interest rate may not be the only thing you will be required to pay along with your loan. Banks may have some other charges such as a fee for processing your loan and charges whenever you default in your monthly repayment of the loan. So, it is important to know all the hidden charges. You can ask your account officer to explain these extra charges.
8. Loan restructuring: You can approach your bank to negotiate the possibility of restructuring your loan if you are not comfortable with the terms. You don’t necessarily have to wait until you have problems with the repayment; you can still negotiate when you are already paying your debt.
9. Credit card: Applying for loan may not be the only option available to you. If you need a short loan, getting a credit card may also be useful. You, however, need to understand how to apply for a credit card and have a good credit score. Depending on the bank, some may give you an interest-free credit for your first usage.
Credits: Forbes, PUNCH