A loan, as we know are funds that organizations such as banks, lend to businesses/ individuals for different reasons. Applying for a loan means using Other People’s Money which is a very big deal in the world of financing. Getting a loan differs with every organization, there are however some processes you have to go through before you are deemed fit enough to be given that loan.
It is vital to prove that you are an upstanding citizen, honest and of high integrity. A dishonest person will often not be granted a loan.
Banks are in the business of giving loans and the more they loan to honest borrowers, the more profit they make.
Some sources of loan include but are not limited to;
The different types of loans available are the Signature Loan, Co-signer Loan, Collateral Loan.
1. Signature Loan: this kind of loan does not require you to put up any property as security. They simply require your signature as a guarantee that you will pay. Another name for signature loan is unsecured loan. However before this loan can be obtained, your eligibility shall be determined by going through your credit history and debt-to-income ratio. Your debt-to-income ratio is the amount of debt you have versus your income.
Defaulting on a signature loan can be detrimental to your credit and might make it difficult for you to get additional loans in future. Since there is no collateral backing the loan, you are obliged/expected to pay it no matter if you run into financial issues.
For a signature loan, there are no restrictions to what you can use it for once approved, but it is advised that you apply for the loan with use in mind.
2. Co-signer loan: a co-signer is someone who guarantees the loan of a borrower, just in case the borrower defaults. A lender usually needs a co-signer when it needs more security to be assured that the loan will be paid off and also especially when the borrower has no business credit history for the bank/lender to rely on. A co-signer doesn’t just sign on the loan; he also undertakes to repay the loan in the case of default by the borrower.
3. Collateral Loan: this is a type of loan where you leverage your assets as collateral for the loan. This is also called a secured loan and it generally has a lower interest rate because the bank is taking a lower risk because it can collect the collateral if you default on payments.
The collateral could include:
Paper collateral i.e stocks and bonds, certificate of deposits etc.
Personal property i.e house, jeweleries cars etc.
A fixed asset such as real estate and machinery.
For everyone who owns property or businesses, it is trite to know what it entails to begin a mortgage process.