There’s always something a little intimidating about applying for a loan. Maybe it’s the thought of having a stranger look at your financial life. Maybe it’s the fear that you’ll be turned down. The truth is applying for a loan shouldn’t feel scary.
There are some common mistakes people make which we will address in this article hence leaving you better informed and more confident about loan applications.
Not Checking Your Credit Score
The approval of your loan application depends on your credit score. Before applying for any loan, the first step should always be to check your credit score.
This number is based on your credit history and current debt levels, and it gives a lender an idea of how trustworthy you are as a borrower. A low credit score denies you the chance to get a good interest rate and can lead to your loan application being rejected.
You can access your credit score from credit reporting companies such as Transunion. All you need to do is download the TransUnion Nipashe app on the Google Play Store, pay a registration fee and then request your credit status.
If your credit score is low, you should consider paying off your outstanding bills, pay down your debts and make sure you’re paying your existing bills on time.
This will improve the number hence setting you up to qualify for a better interest rate, which will save you money. Paying down existing debt will also help you to better afford the payments on a new loan.
Pro Tip: If your credit score is low, you can read on how to improve your credit score
Making Multiple Loan Inquiries
Each time you seek a loan from a lender, a query is raised, and it appears on your credit report along with the date. With each query, your credit score reduces.
When multiple queries are raised in a short span of time, you are considered as ‘credit hungry’. A Lender views this as a sign of high credit risk which reduces the chances of your loan application being approved or may lead to a higher interest rate.
Pro Tip: Do your research to understand which lenders are right for you. Find out more about the lender and product by visiting their website or calling customer care to get clarity of the requirements and types of loans they offer.
Falsifying Financial Information
While you might be tempted to fudge the details about how much you make and how much you owe, this is technically considered fraud. If a lender realizes you’ve misrepresented your financial information, they reject the loan.
The biggest reason a lender wants to know about your financial situation is so that they can evaluate your repayment capacity. This might be frustrating if you had your heart set on buying a new Ferrari but only got enough money for a used Chevrolet, you can take comfort in knowing you’ll be able to afford your loan payments.
Pro Tip: Provide full disclosure of your finances as it is today, it will not necessarily deter a lender but hiding details is likely to do that and might make it difficult for you to secure a loan.
Not Researching Your Lender Thoroughly
Taking a loan is a big decision that significantly affects your financial life for an extended period. While lending is largely well regulated, there are still less than scrupulous lenders who use predatory practices to make a profit and especially in Kenya. To safeguard yourself from falling prey to such lenders, do your research before you approach them for a loan.
Keep in mind that a reputable lender will make the whole process of borrowing transparent and will take the time to explain the process to you. They will disclose all aspects of the loan sanctioning charges upfront and offer legitimate repayment options.
Pro Tip: Opt for registered organizations as they will be under strict compliance ensuring consumer safety.
Not Understanding the Loan Product
Loan products can seem complex because they are often presented with plenty of information and jargon that can be difficult to interpret. It is essential for you as a borrower to understand what loan product you are signing up for before you accept the loan.
There are various loan products based on the need that a customer has. Have the lender guide you on the product that best caters to your need.
Understand how the loan product can be used, the requirements of equated monthly instalment (EMI) payments, early repayment options, and other terms and conditions.
It is important to be in the know of the purpose of the loan, and how it will be allocated once issued. You should find out from the lender if you will get the amount upfront or if it will be in installments.
Pro Tip: Before you apply for a loan, get a good idea of its purpose so that you can request the correct loan amount. You can also use an EMI calculator to figure out how much you will have to pay each month and ensure that your cash flows support the repayment.
Bidii Credit is always offering FREE advice and consultation in regards to loans. Contact us today and speak to a financial advisor. We also have a variety of secured and unsecured loans that you can get within a short period of time- From 6 hours