We all know that there are periods when money can be tight and find ourselves considering whether or not a loan might help or potentially make our financial problems worse. Borrowing money is a serious business, and it is important to prepare carefully. There is nothing wrong with taking a loan – after all, that’s why they exist. This article assumes that you have decided to borrow from a lender to mitigate your financial distress. So, let’s review some steps that you should take before you fill out that loan application.
Your Credit Score Matters
Before you rush to send a bunch of loan applications to every lender you can find, keep in mind that too many applications for loans that are rejected by lenders can lead to your credit rating being downgraded. Each time you apply for credit, your credit report is pulled and an inquiry appears. Some lenders view too many inquiries over a short period of time, especially within the past 60 days, as a desperate attempt to acquire credit. The lender may also wonder how many of those resulted in an approval for a new account that has yet to appear on your credit file. So, too many applications at the same time might brand you as a high-risk borrower. These inquiries automatically impact your credit score, and a subjective analysis by any potential borrow may raise serious doubts leading to a rejection of your loan request.
Your credit history and current credit score play an important role when you apply for a loan of any type. Not only is your probability of approval directly tied to your credit score, so too is the interest rate that will be applied to your loan if you are approved. If you have a record of failed payments, defaults and late payments, and excessive inquiries for new credit, then your loan application may be rejected out of hand by risk-averse lenders. Even if your loan application is approved, you may have to pay a higher interest rate than borrowers with higher credit scores or very few inquiries on their credit file.
When you apply for credit, the lender will gauge your creditworthiness using a credit file obtained from one or more of the credit bureaus. If you do not yet know your credit score, the time to find out is now – before you apply for a loan. Remember: there are three primary credit bureaus: Equifax, TransUnion and Experian. Each of these collect and retain detailed information about all of your credit accounts. Since your credit report and score may vary among the three bureaus, you should monitor your credit report at each of the agencies on a regular basis. You might be charged a fee in order to access your credit record, but it is well worth it, especially if you find inaccurate information or even fraudulent account activity.
Check your credit report and scores on a regular basis. Anything that you believe to be inaccurate or fraudulent (for example, if someone opened an account in your name) should be disputed expeditiously. If you don’t need a loan immediately, spend time improving your credit score by disputing inaccurate account information, and by making a valiant effort to improve existing creditor relations by bringing delinquent accounts current, paying all creditor obligations on time each month, and canceling credit cards you don’t use. Note: we recommend leaving your oldest credit card open, since length of credit history is a credit scoring factor; just make sure your balance on that card is less than 35% of the available credit and that you pay on time, each month going forward.
It is important to compare loans, rates, and even check for consumer reviews about the potential lender; comparing loans does not mean applying for each before comparing – remember, each application is an inquiry on your credit file. There are many different types of lenders out there; some cater to the wealthy or those with impeccable credit reports. There are also many lending organizations that cater to those with less than perfect credit. Remember, you need a loan and those who lend money are looking to make a profit by lending money to you.
Be realistic. If you don’t have a credit score above 700, then don’t waste your time by applying with a financier who caters only to those with high scores. Additionally, don’t settle for the first loan offer that you find, especially if the interest rate quoted is exorbitant. Continue to look for a few other companies to compare rates, products, and their respective terms and conditions. Look for a product that meets your requirements affordably. If you have choice, apply for a loan that comes with the lowest interest, no hidden charges, low fees and a longer time for repayment.
Do not despair if you have a bad credit record, and certainly don’t take rejection personally. There are plenty lenders who provide loans for bad credit. Debt consolidation loans are also available for people who want to combine their different debts into one easily manageable one, in an attempt to restructure their credit ratings.
Budget Carefully and Borrow Only What You Need
Some people think that borrowing more money than they need will help them build their credit, but there are easier — and less expensive — ways to accomplish that goal. If you are borrowing money, it is important to borrow only the amount you need and not a penny more.
Careful budgeting is always important, but it is even more vital when you have a loan outstanding. Your loan payment needs to be one of your top priorities, so create a careful budget showing how much you make and how much you spend.
If the numbers are tight, you may need to cut back on a few non-essentials or rearrange your spending until the loan is paid. Missing a loan payment can severely damage your credit or put your collateral at risk, so budget carefully and make sure you will be able to make the payments.
Borrowing more than you need just means that you will be paying more interest – and possibly have a harder time paying back the funds. Before you even apply for the loan, you should evaluate your budget and determine exactly how much you need.
No matter why you need the money, the right preparation can make getting a loan a lot easier. From boosting your credit score to developing a comprehensive family budget, there are things you can do to get the money you need and pay it back without incident.
Protecting Yourself When Applying for Loans Online
With so many retailers suffering data breaches and so much sensitive information floating around the Internet, it is getting harder and harder to keep your personal information private and confidential. You might think that there is nothing you can do to protect yourself, but that is not the case. You do not have to be at the mercy of the hackers and identity thieves. Therefore, the best thing you can do to protect yourself is submit the application directly to the lender or loan-referral company on its official website. This way, you can be certain that the information will find its way into the right hands and not illegally diverted or sold to unauthorized parties.
There are a couple of things you can do to make sure the site is legitimate:
- Legitimate lenders do not send unsolicited emails with clickable links telling you that you have been approved for a loan. Never click the links contained within those emails. If you believe that it is an email emanating from a loan application that you submitted, open a web browser and search for that company’s name and contact them directly through the website.
- When visiting the website of a potential lender, make sure the website contains the company name, a verifiable address, and a phone number. The absence of these things is a red flag.
- Check out the company’s Better Business Bureau profile. If there are complaints of fraud or theft, then steer clear. Double check the company name in the BBB profile to make sure it’s the same company and not one with a similar name.
- Do a search online for information about the company’s reputation. Granted, all companies get their fair share of bad reviews; however, if the number of bad reviews outpace the good ones or if there are a lot of complaints about fraudulent activity, then look elsewhere.
- Find a referral site that doesn’t require you to give your personally-identifying account information. Typically, a legitimate lender will contact you for this information directly if/when your loan application is approved.
- When applying for a loan online, make sure the website utilizes SSL (Secure Sockets Layer) which encrypts your information and is very difficult to intercept. SSL pages will have “https” in the address bar instead of “http”. Furthermore, the page should also display an SSL certificate which, upon clicking, will reveal information about the website’s level of security, the age of the certificate, and any vulnerabilities found.
- Use “whois” to make sure the website is well-established. Simply open a web browser and type the following in the address bar: sc/domain.com (replace “domain.com” with the lender’s domain). The information returned will include the date the website was registered (i.e., the age of the website) and information about the server’s location (i.e., the country where the website is operating). Red flags would include a server located in a foreign country and/or a website registered within the past year. The next section will include information about identifying and steering clear of loan scams.
Beware of Loan Scams
After you submit an application, you will receive an email or a phone call from the lender. Unfortunately, scammers have surreptitious ways of gaining access to your personal information whether through spyware on your computer or through the submission of your personal information to a website created with fraudulent intent. If you receive a call from anyone who tells you that you have been approved, but then require you to wire money for any purpose in advance of the loan, it is a scam.
By following the steps above, you will significantly reduce the chance of encountering such scum leaching off of those who need money the most. I recommend that you read the comprehensive loan scam alert prepared by Direct Lending Solutions so you can learn to recognize the signs of a scam before it’s too late.