I understand the enthusiasm around getting loan/funds to sort out pressing bills when it’s urgent.

While the frenzy is in gear, have you considered the concepts associated with the loans?

If your answer is no, you need to read this to the last word. The goal is to expose you to the stuff that helps you make the best decisions on your loan applications.

Here are the concepts to get accustomed to before you sign that loan offer letter.

1. Loan Firm’s Background

Accessing loan facilities has become easier as more companies are positioning well to address the problems associated with accessing funds. It, in a way, comes with a disadvantage as there are organizations whose goal is to extort the clients due to inadequate financial literacy.

Get reviews and insights from clients who have used their products. It helps you make rational decisions – you do not want to end up with a firm that will keep harassing you and your families just in the name of loan repayment.

2. Interest Rates

If this is the only thing you will pick from this content, please let it stick. 

Interest rate is one of the deal-breakers for most people. The sad part is that most people do not understand how important this is. To reiterate, this helps to calculate how much more you will be paying to the lender (the loan firm).

It can help you analyze the loan to be sure it is financially solid, or the firm is just ridiculously pricey with its product offerings. 

3. Credit Rating/Worthiness

Every loan firm that wants to remain in business needs to pay good attention to the creditworthiness of the proposed clients. Credit rating is how well you have been without being responsible with your credit facilities – the more you pay when due, the greater your credit ratings.

That said, loan firms take solace in your creditworthiness as a way to affirm to themself that you will not ghost on them when it is time for repayment.

In simple terms, the better your credit ratings, the less scrutiny you get while accessing loans. 

4. Debt-To-Income

One way to attest to your ability to pay back the loan is through your income. When income is insufficient to offset your loan repayment, there is a problem. At this point, there is no point in accessing such a loan as this could turn out to be a poor financial decision for you.

DTI is the percentage of your monthly income that goes into debt servicing.  

You need to understand DTI as it helps you know how much you can access and how best your income covers it without unnecessary complications.

5. Repayment Structure/Plan

One more thing to critically analyze is the repayment structure. It is how the company wants you to repay your debt.

It is significant to you as it helps analyze if the conversation around rates and tenor is in sync with the final offer letter you have in your hands.

The repayment structure mostly has a part of your principal and interest summed up for monthly deduction. Adding all the principal payment up and comparing it with the amount you want to borrow helps you confirm that there are no extra funds on the principal.

Also, reconciling the interest rates and the interest element of the repayment plan helps you reaffirm the credibility of the loan firm.

Conclusion

Understand that your income and credit ratings are relevant to how much loan you can access for a certain period. As much as the firm is doing a KYC on you, you must run a sort of KYL (Know Your Lender). 

Your repayment structure is the best way to confirm the validity of the interest rate.

Regardless of how rapidly you want the funds, you must get all these boxes ticked before signing the loan document. 

Visit our Loan application page to see which loan offer suits you