Loans 101 – Everything You Need to Know About a Loan
To get approved for a loan, you need to know how you can actually qualify for a loan. To do that, you need to know your way around loans, and fully understand all the terms and factors that come with borrowing money from a bank or credit union.
General Definition of Loans
A loan is a lump sum of money that you (the borrower) borrow from a particular entity (the lender) with a guarantee that you will pay it back in full after a specific period of time. You can pay it back all at once, or you can provide regular installments over time. Either way, you pay your loan back with interest.
This means providing a particular amount above repayment of the amount you borrowed, at a specific rate (interest rate) set by the lender.
Depending on the loan you choose, you may have to provide a down payment, or you may choose to do so even if it’s not required. Providing a down payment instantly reduces the interest amount you have to pay over time.
Getting a Loan with Bad Credit
Getting a loan with bad credit may be a bit difficult, but it’s not impossible. There are many lenders who offer options for people with a low credit score, while others may approve you only for a secured loan. However, you may also choose to apply for a loan with a cosigner.
The cosigner needs to have good credit and/or a very high income. This can be risky for the cosigner because they certainly wouldn’t want you to default on your loan. If you do, they would be the one paying off your loan instead of you, not to mention that their credit score would be negatively affected.
Therefore, if you choose this option, make sure you’re absolutely certain that you can provide on-time, full payments. You should also ask only the closest friends or family members to cosign a loan with you.
Of course, you can always postpone getting a loan to work on improving your credit score. You can raise your credit score within several months, when using credit reporting cards or secured credit cards, but building a really good score may take a bit longer, depending on your unique situation. If your need for a loan isn’t an emergency, take the time to rebuild your credit score, so that you can get your loan approval.
If you opt for getting a loan with a cosigner who has a healthy credit score and income, you may be able to get a lower interest rate. Consider this if you have bad credit, but you’re in a hurry to get a loan.