Loans provide individuals and businesses with much-needed resources to fulfill their plans. They provide quicker alternatives to get capital for starting a business. At the individual level, loans serve emergency purposes as well as solving crisis situations.
The popularity and convenience that loans offer are further exhibited by the huge demand for credit facilities. Traditionally, one had to go through a banking institution and apply for a loan using an asset as collateral. Though this conventional system still exists, other credit facilities do not require collateral to offer loans. Examples of such systems include mobile loans, smart loans, and crowdfunding for small enterprises.
So, with so much credit sources out there, you need a deep understanding of how these loans work. Furthermore, remember they provide convenience at a cost. The cost of a loan impacts on your financial freedom in many ways. Therefore, make the following considerations before getting that loan;
- Do I qualify for the loan?
Well, you have your cash flow needs, and there are thousands of credit facilities. However, you need to investigate whether you qualify for such loans. Financial institutions, for instance, have well-defined guidelines of credit control. They can highlight your credit score or rating. Evaluate their loan qualification criteria.
- How much money are you in need?
The amount of money you intend to borrow must fulfill your immediate needs as well as the foreseeable future. The rationale for this is because the cost of the loan is met in the long term. Therefore, enjoy the service of the loan in the short run. Also, you cannot make your way to your creditor every time you have cash deficits. It makes you look disorganized.
Monthly or quarterly cash projections are the best way to determine the cash estimates you need. With a projection, you can approach banks with a sound business plan for approval.
- Which credit institution offers the best deal?
Naturally in business, demand and supply operate hand in hand. Therefore, as the demand for credit soars up higher, so does the establishment of credit institutions. The credit market revolution of the 21st century has made it possible to access a variety of loans with ease.
Credit companies adjust their rates to woo clients. Compare the rates offers by different banks. The best deal offers you flexible interest and repayment rates.
- How much money can my asset guarantee?
When you step into a bank for a loan request, you must possess an asset to be used as collateral. The value of this asset determines the amount the bank can offer you. According to Entrepreneur, banks devalue the asset and only lend up to a certain percentage of that asset mostly in the region of 60-70%.
- What’s my repayment plan?
You need proof of adequate sources of cash to repay the loan. For instance, a business has to have a financial projection. With a personal loan, you must prove you possess enough resources to pay back.
In this case, the lender negotiates with you on a weekly or monthly repayment strategy that works for you.