Before one could borrow from a lender, he/she must know how these forms of loans work. That is to say, you must know the necessary procedures, eligibility requirements, terms and others.
There are several usage of loans by individuals and companies. The most common ones including paying home bills, medical bills, purchasing or refinancing a home or a car and more. There are many activities associated with obtaining a loan. On certain occasions, one can get a fair idea of how much he/she can get before applying for the loan.
Furthermore, loans are either secured or unsecured, thus most loans comes with collateral whiles others do not. It is very important to make a thorough research into how loans work before you apply for them. These processes varies from one lender to the other and also based on the type of loan. With this, you can make a good decision.
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How loans work
Loans are associated with certain vocabularies or terms that every borrower must be familiar with. Some of these common terms include principal, interest rate, APR, origination fee, downpayment, monthly installment, repayment plan, etc.
Principal is the amount you request on a loan given by the lender.
The interest rate has to deal with a percentage of the loan a borrower pay with the principal amount which is decided by the lender based on the loan type and term. This means that a borrow in the process of repaying the loan, you will pay the principal amount plus the interest.
Origination fee is also a percentage paid on the principal for processing your loan, it’s either added or subtracted from the principal.
Downpayment, mostly associated with mortgage loans, where you pay a percentage out of the purchase price of the house.
Repayment plan, this is the method of payment you decide on as a borrower with the help of the lender.
There are more terms and activities associated with acquiring a loan that people must know. Lenders also provide you with their terms and conditions on the loan offer. Read carefully and understand before you accept them.
Types of loans borrowers can apply for
Borrowers have at their disposal various forms of loans they can choose from depending on its purpose. Here are some of the types of loans offered by lenders;
- Personal loans
- Auto loans
- Mortgage loans
- Student loans
- Debit consolidation
- Home Equity loans
- Balloon mortgage loans
- Loans for Veterans
- Cash Advances
- Payday loans
- Pawnshop loans
How does one qualify for a loan?
Qualifying for a loan has to do with meet certain eligibility requirements which varies from one lender to the other. These factors used by lenders assumes whether a borrower will be able to pay a loan or not. These factors include;
- Credit score
- Employment history
- Income information
- Bank statement, etc.
It is agreed that with a good or strong credit score, borrowers are mostly likely to get a loan. On the other hand, you can still get a loan with a bad credit but will come with high interest rate.
Other lenders who do no credit checks request for collateral which serve as a security for your loan. With a regular source of income, you can also find a lender who will be interested in granting you a loan.
How to apply for a loan
Applying for a loan can either be done online or in person (visit their office). There are also online companies that connect borrowers with lenders.
Online application – borrowers will have to sign up online with the particular lender they choice. The lender will then review the loan application and make a decision on whether you qualify or not. Qualified borrowers either receive their loan the same day or in fee business days directly into your account.
For mortgage and auto loans, the money will be paid directly to the seller.
How to make payment on a loan
After you receive your loan, you are given a term of payment, thus how long you supposed to complete paying off your loan. There are loans that make repayment on monthly installment, your next pay day and years.
Depending on the loan type and term, there are different repayment plans you can choose from. Borrowers can set up automatic payment, pay online, through phone, in person, by mail and money order on the due date.
As a first-time borrower, it is very necessary to take into consideration how loans work especially in your state. Also, based on the types of loans, you can also find out what their terms and conditions are before you for in for them. Everyone is entitled to a loan, provided you are 18 years and above.
In conclusion, note that not all loans are available in every state in the U.S. There are just a few that provide their services in all state. With a good, bad or no credit history you are sure to get a loan for yourself. Also, be convinced you making the right choice when it comes to acquiring a loan.