Debt Reduction

How to Get A Loan (Even if You Have Debt)

When looking for a loan you have to do more than ask how much money you need and where you can get it from. You also have to consider if you’re eligible for a loan and how you will repay the loan.

If you’re seeking an emergency loan for a small amount, something to tide you over until your next paycheck or the next few paychecks, you’ll find that unsecured personal loans are easy to apply for. This is because the amount borrowed can be easily repaid from a verified source of income. These kinds of loans are available from online lenders.

If you need a large loan for starting a business, then you must be fairly confident that your business idea has a high probability of success. If you’re not too sure about whether you’re entering a promising market or if you have the knowledge, skills, and experience to run the business well, you may be looking at a future where you’re digging into debt rather than getting ahead in life. These kinds of loans are available from online lenders, angel investors, venture capital firms, and banks.

And if you need a large loan for a big-ticket purchase, say, buying a house, then the lender will review your financial ability to pay off the loan over a long period of time. These kinds of loans are usually available from banks and credit unions.

What Lenders Look for In an Application

When reviewing your loan application, a lender will consider a number of things.  They will look at your credit history, your income and expenses, and your employment or business history. If they decide to give you a loan, the loan terms will depend on how much of down payment you can offer, your amount of liquid assets, and what type of collateral you can put up.

Reviewing Your Credit History

When looking at your credit history, lenders will do more than take your credit score into consideration. They will also review it to see if you have delinquent accounts, unpaid collections accounts, outstanding debts, a past bankruptcy, foreclosures, tax liens, and the number of recent credit applications.

Evaluating Your Income and Expenses

While a high income is certainly favorable because you’re less likely to be seen as a risk, it’s not the only thing that counts. Lenders are especially interested in your debt-to-income ratio to make sure that if it falls below their maximum allowable ratio.

Appraising Your Employment or Business History

If you have a high income and a good income-to-debt ratio, this may be more than enough to qualify for a loan at a good rate. But if the lender is uncertain, they may also review your income for the past two years. If there are gaps in your income or your business has incurred a few months of loss, this doesn’t automatically disqualify you for a loan, but it will raise your interest rates.

Establishing the Conditions of the Loan

If, after going over your credit history, income and expenses, and employment or business history, the lender agrees to give you a loan, they still have to decide on the loan terms.

If it is a long-term loan, your monthly payments will be lower. And if it is a short-term loan, interest will be higher—but this isn’t necessarily a bad thing as you’ll be out of debt faster.

If you can offer a down payment, this will reduce the lender’s risk. As a result, the higher your down payment, the lower your interest payment is likely to be.

If you have liquid assets, this will assure lenders that you’ll be able to pay off the loan if you lose your job or your business suffers heavy losses. The higher your liquid assets, the more your interest rates will fall.

Finally, if you apply for a secured loan, that is, a loan that’s backed up with collateral, your interest rate will be lower. While this decreases the lender’s risk, it will increase your risk. If you can’t make the payments, you could lose your house, car, stocks, or other types of collateral.

How Debt Affects A Loan Application

If you have a lot of debt, this doesn’t mean you’re not eligible for a loan. A bank may still lend you money. The debt you’re currently carrying is not necessarily a deal-breaker, but it will affect your interest rate.

In conclusion, there are many things to consider when you ask for a loan. You have to consider how much you need, the best place to apply for a loan, the criteria necessary to secure the loan, and your plan to repay the loan back in a timely way.


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