The amount of money borrowed for the pre-decided period and pre-decided repayment plan is called a “loan” The repayment amount depends upon:
- Amount of loan,
- Duration of loan
- Rate of interest
There is a famous saying that “A poor man without debt smiles more often than a rich man in debt,” but in today’s context, this may not hold good because of the highly expensive education, luxury lifestyle, business requirements, or just unavoidable personal needs. Loans have become an inevitable part of common people’s life who are generally short of money for their various needs and mostly depend upon EMI for their purchases ranging from motorbike to cars, education to house and for setting up a new business or for expanding the existing one.
Now the first and the foremost question that comes to your mind must be, “How do I apply for a loan?”. You can apply for a loan online, by post, by phone, or in the branch itself. The answer is not that simple because for different categories of loans the process may be different depending on the prevailing rules of the concerned banks or financial institutions. For more information visit Lånapengar.com.
Let’s now outline the process for various categories of a loan in the UK:
1. You must be over 18 years of age and a UK resident. It is easier to get a loan if you hold a bank account with the lender bank.
2. For an educational loan you need to set up a student finance online account or otherwise you can also fill in the prescribed physical form in physical mode. You will have to fill in the details of your course, your identity proof, your medical fitness certificate, and any other details as may be required in the form.
3. For a personal loan you need to give your personal details such as date of birth etc., employment details, income details, and credit score. The eligibility criteria for different categories and different banks may vary slightly but the basic requirement remains almost the same.
4. Before finalizing the bank, post-office, or institution from which you are taking the loan you must ask the lender about the rate of interest and the EMI details and compare them.
5. If you are planning to take a car or vehicle loan, you should calculate how much your car is going to cost you using the car loan calculator of the lender.
6. Your house frequently needs some sort of renovation in which minor construction works are involved which may disturb your normal budget. To combat such a situation there are multiple options of loans offered by different lenders. For this, you should wisely calculate how much and for how long you need financial assistance in terms of the loan.
7. A common man’s ambition is to own a dream house for which one needs to explore the housing loan options available in the market because most of us are incapable of buying our dream house without any financial assistance. This type of loan usually lasts for a longer period and therefore comes under the category of long-term loans that are usually offered with an EMI option.
8. Sometimes you need a loan to start a new business or expand your existing business. As this type of loan involves a large sum of money usually you need to mortgage some asset. While opting for such a loan you need to clearly understand the terms and conditions of mortgaging your asset.
9. To have clarity on your financial burden due to a loan you must choose a suitable loan repayment option.
10. Last but not least you must be aware of the penalties you need to pay if you are a defaulter in repaying the loan. Missing loan payments also negatively impacts your credit score.
Let us now elaborate on some of the advantages and disadvantages of a term loan.
Advantages:
• Term loans are granted usually for 3 to 10 years, so you need not worry about their repayment before the expiry of this term. If however, you breach the pre-agreed conditions of the loan, then the lender may ask you for premature repayment.
• You may have the option to negotiate for a break in the repayment schedule, sometimes known as a ‘repayment holiday’. But this option can be availed only if it is agreed upon at the very beginning of the term. In this situation, you only have to pay interest for a certain period of time while repayments on capital are frozen.
• Some people prefer to pay an arrangement fee at the start of the loan and not throughout its term, so they can opt for an on-demand loan, in which they are required to pay only a renewal fee annually.
• The advantage of taking a loan for business is that you are only entitled to pay the agreed interest on your loan and you need not give a share or profit of your company to the lender.
Disadvantages:
• Sometimes due to unavoidable circumstances your business may not start in time as planned and if you have already taken the loan you still have to pay the interest even on the funds you are not using.
• If your company is not maintaining optimum cash flow, the loan repayment imparts an extra burden on you and you are at no liberty to defer your repayment.
• Sometimes you mortgage your assets for getting a secured loan because the interest rates are lower than for unsecured ones. But in that case, your asset is at risk if you cannot make the repayments as scheduled.
• One of the disadvantages of taking a loan with a fixed interest rate is that you have to pay a charge if you want to repay the amount prior to the end of the term.
Hope you have now got the answer to your query that “How do I apply for a loan?” as well as what all you need to check before applying for a loan.
Rhydian Choi