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Bad Credit? 5 Things to Do Before Applying for a Loan

Excited young woman received bank loan approval notice.

Low credit score? The bad news is that your current credit score prohibits some lenders from doing business with you. Fortunately, there are lenders who are willing to extend financing to those with less than ideal credit. By finding the right lender and taking the time to follow the steps to qualify for a personal loan, you could soon have the funds that you seek. Here are some things that you need to do before actually submitting the loan application.

Gather Documents That Confirm the Basics

Lenders of all types will require certain basic information. For example, the lender will want confirmation that you have a permanent residence. If you’re using income from a job as your primary source of revenue, information about your job will be required. People who are receiving aid from a federal or provincial program will need to provide proof of that income. Even something that confirms your identity will be necessary.

If in doubt about what sort of information the lender will need, check the guidelines that come with each application. You can gather all the data ahead of time and have it at hand as you begin to prepare the application proper.

Determine How Much Money You Want to Borrow

What will it take to help you deal with a pressing financial issue? It’s important to be realistic about the amount you want to borrow. The last thing that you need is to run short and then need more financing to properly complete the project.

If necessary, sit down and make a list of all the tasks associated with the project. Assign costs to each one of those tasks. Once you total the amount, round it up to nearest even figure. That should give you a good idea of how much financing you’ll need.

Make Sure You Have a Plan for Repaying the Debt

The thing to remember about loans is that they do have to be repaid. That means if you qualify for a cash loan living in British Columbia, it pays to already have an idea of how much you can afford to repay each month. Hopefully, that figure will be higher than the installment amount the lender ultimately requests. At the very least, knowing what you can put toward the loan repayment every month will give you a good idea of how long you will need to repay the balance.

Do Some Research on Bad Credit Lenders

Not all bad credit lenders operate in exactly the same way. As the consumer, it’s up to you to find out what you can about potential lenders in advance. Do spend time researching them and identifying the ones that seem to be the best fit for your purposes. Be especially mindful of factors like the amount of interest and how the interest rate is applied, the repayment terms, and what online tools you can use to track the status of the loan.

Double Check the Application Before Submission

While you will carefully fill out the application, it never hurts to go back over all of the responses before submitting the application. If possible, finish the initial preparation and step away for a little while. Go back after a half-hour or so and take a fresh look at the answers and make sure they are complete, correct, and speak directly to the questions. If you’re satisfied that you’ve included everything the lender has requested, go ahead and submit the application.

Thanks to the ability to submit applications online, the process for requesting a loan has never been easier. Make sure you know in advance what’s required and what you hope to gain by receiving the loan. Definitely make sure that you can repay the debt within the amount of time allowed.

Assuming everything is in order and you do receive an offer, go over the details and make sure you understand everything before accepting the terms. Doing so will enhance the odds of building a solid working relationship with the lender and having a source to call upon if you need another loan in the future.

Types of loans available

Once you have done all these things before submitting your bad credit loan application, it’s important to know about the loan types. Two types of loans are much common among the borrowers i.e. secured loans and unsecured loans. Let’s have a look at these loan types in detail.

  1. Secured loans

A loan that is approved against an asset is known as a secured loan. If in case a borrower fails to repay the loan, the lender will have the right to acquire and sell that asset to obtain his loan amount. A mortgage is the most common secured loan and gives the right to lender to possess the asset if the borrower becomes bankrupt. Borrowers usually offer their house or car as a secured against a loan.

  1. Unsecured loans

On the other hand, unsecured loans are not secured against an asset. Credit card borrowings and personal loans are the most common types of secured loans. If the borrower default or miss repayments, the lender doesn’t have the legal right to possess his property to clear up unsecured debts. But that doesn’t mean defaulting on unsecured loans is free of aftereffects. The defaulting borrower is likely to bear penalty charges and damage to his credit record.

Published: June 16, 2020

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Larry Rouillard

Larry J. Rouillard was born and raised in Canada. He completed his education in journalism and adopted this field as his profession. Rouillard is well-versed in finance and business-related technicalities. This is why he is popular for his business and finance articles and blogs. Readers like Rouillard's way of writing and expression. He always uses simple words to let the reader understand the technical terms of finance and business.

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