Personal financial fortunes ebb and flow, alongside earnings and spending. In an ideal world, the flow of cash through your household is enough to cover spending obligations, without taking extraordinary measures. At times, however, financial commitments exceed income, or unexpected expenses change your status. Fortunately, there are a variety of options available for those needing funding. And while each case is unique, people share some of the same money concerns.
Regardless of what brings you to the bank, it is important to answer a few questions before making borrowing commitments. By first defining your needs, your search for financing is more direct and focused on the types of loans best suited to your circumstances.
How Much Money do You Need?
A crucial first step toward needed financing is determining exactly how much you intend to borrow. When money is required for a specific one-time purchase, like a home, settling on the correct type of funding is relatively easy. Mortgages are designed exclusively for funding real estate buys, so they are structured for long-term payback at low rates. Qualifying for conventional home loans requires good credit, but there is no better method for financing a property purchase.
In other cases, the best funding approach is not clear-cut. Buying a car, for example, could be accomplished with the help of a personal loan, guaranteed by your employment income. Such personal loans require the same type of credit evaluation typical imposed by mortgage lenders, but they are structured as short-term debt, to be repaid within a few years. Without a strong credit rating, you may struggle to convince banks and credit unions to issue a conventional individual loan.
Do You Have Good Credit?
In addition to the size of a loan, it is essential to consider how much risk you present to lenders. To evaluate creditworthiness, lenders assess your employment and residential histories, as well as financial details from your past. Applicants with steady salaries and strong credit references are less risky to banks, so they have access to the best interest rates and loan terms. Borrowers with credit challenges on their records may not be excluded entirely, but their options may be limited when compared to those with perfect credit histories.
Applicants with limited references or negative entries on their credit records may be able to boost their credit strength using a unique loan program offered by some lenders. Guarantor loans are made with the help of another party willing to lend his or her credit power to your application. To help you qualify, your cosigner’s credit score is considered alongside your own, furnishing an additional layer of security for lenders. In most cases, your guarantor doesn’t participate with repayment or use of the loan proceeds – he or she is there only to secure funding for you. If you fail to repay your loan, however, the guarantor is equally responsible for the outstanding debt, so banks will not hesitate to pursue collections.
Is Borrowing the Best Approach?
Household expenses cover a wide range of costs, from must-haves like food and shelter, to discretionary spending on recreation and entertainment. When customary cash flow is not enough to cover a particular expense, it should be evaluated to determine the best funding approach. Can it wait? Or are financial resources required immediately? By deferring spending and saving for a specific purpose, you may be able to avoid financing and origination fees tied to commercial loans.
Unexpected financial needs requiring quick cash can be hard to manage, because options are limited for those without savings on hand. If the need is short-term and repayment is expected within weeks, a payday loan presents a fast funding alternative, which can be processed quickly, without a formal credit check. Eligibility is based on steady employment, so your anticipated paycheck is used as collateral for this type of funding. Timely repayment is essential when committing to short-term financing, because costly penalties are imposed on those unable to meet payment terms.
Cash on hand is insufficient, at times, so consumers turn to various forms of financing. To settle on the best available funding, first evaluate your needs, accounting for your credit standing and personal resources. Once your goals and alternatives are clear, weigh the benefits of short and long-term options, before committing to the most appropriate loan solution.