Taking Out a Loan : Important Aspects to Consider When Applying for a Loan
Posted On August 6, 2019
When contemplating to take out a loan as a means of supplementing funds for a startup business, there are certain aspects to look into before taking the plunge. Just like any financial decision one is about to make, it is important to compare providers or lenders, their lending conditions and the type of loan offered.
Processing or Origination Fees and Other Front-End Charges
Be in the know that applying for a loan requires payment of processing fees and other front-end charges. The amounts of which may be calculated based on a flat fee or based on a specific percentage of the loan. The rationale behind the fees is to cover the costs incurred in processing and evaluating the loan application along with the documents submitted.
Generally, banks and lending institutions pre-approve loan applications. That way, loan applicants, with less than likely chances of getting their applications approved, will not be burdened by the payment of processing and front-end fees.
Absence of a pre approval may result in money wasted on a loan application that will only be disapproved with certainty, due to lack of the basic qualities lenders look for in a borrower. The payment of which could have been avoided at the very start of an individual’s loan application..
Interest Rates and Terms of Payment
Interest rates applied by lending institutions tend to vary; but mainly because they also differ in the manner by which they collect interests. Some may discount interests in advance, which means the total interest due on the loan will be deducted from the principal amount to be released as borrowings.
Some others compute interest payments based on the outstanding or unpaid balance of the loan. Such term means, you will be paying less interest as the principal amount decreases through monthly payments.
What Lenders Consider as Sound Bases for Approving a Loan
Lending institutions usually hire a credit analyst who will evaluate a borrower’s “4 C’s” Character, Capability to Pay, Capital and Collateral.
The Credit Analyst is responsible not only for evaluating loan applications but in monitoring the status of existing loan accounts as well. In their terms and conditions, banks or lending institutions generally include the right to demand full payment, as a means of terminating the loan if in case a borrower faIls to maintain,the acceptability of his or her “4 Cs.” .