5 Things to Familiarize Yourself with Before Your First Loan Application

Getting a loan from a financial institution used to be a time-consuming process that involved tedious paperwork and verification procedures.  The inconvenient nature of obtaining financial credit made many people turn to other options, such as borrowing from friends, family members, or local lenders.   

However, access to credit has become much easier in recent years, thanks to the emergence of unsecured loans and new technology. Today, many people are increasingly turning to financial institutions for loans. Without any paperwork or collateral, you can now apply for a loan from the comfort of your own home and have it disbursed into your account in minutes.  

The entire procedure has been simplified. Nonetheless, you must understand the conditions of your application process for your loan to be approved by any financial institution.  

If you’ve ever taken a loan, you’re probably already familiar with these terms, but if you’re thinking of applying for your first loan, you should be aware of them. 

1. Credit Score; A credit score is a statistical study that lenders use to determine a person’s credit risk and repayment ability. When someone applies for a loan, their credit score is evaluated to determine whether or not the loan will be accepted. 

A good credit score shows lenders that you can pay your debts on time, but a negative credit score indicates that you might have trouble returning your loan. As a result, the higher your credit, the better your chances of getting a loan. 

At Zedvance Finance, we use credit scores as a part of our eligibility criteria to determine who qualifies for a loan and at what credit limit, this is why it is important for our customers to keep a good credit score. 

Read more about Credit scores and how to build your credit score here 

2. Credit limit; This is the exact maximum amount of money you can borrow from a lender. To get your credit limit, a lender examines your earnings, account statements, and spending history to see how you have been managing your money. After this has been done, your credit limit will be availed to you. You can borrow within your credit limit, but not above it. 

3. Tenor; This refers to the length of time that will be taken by the borrower to repay the loan along with the interest. This means if you have a loan tenor of 1 year you would have to service the loan for 12 months.  

4. Monthly debt payments; The payments you make to repay a lender for the money you borrowed are referred to as monthly debt payments. This implies that when you take out a loan, you must pay a set amount each month until the debt is entirely paid off. The lender determines the monthly payment amount based on your debt-to-income ratio and other criteria. 

5. Interest rate; This is the amount a lender charges a borrower. The interest rate is expressed as a percentage of the principal (the amount borrowed) and is usually stated annually or monthly. 
 
Bottom Line; Loans come in handy when we are in financial need, which is why it is important that every individual, educate themselves about what getting a loan entail in order to enhance their chances of getting their loan accepted.