8 Questions You Need to Ask Before You Apply for a Loan

You already identified the right instances on when to apply for a loan. Assuming you really need one, this doesn’t mean you should go to your preferred lender immediately and submit your loan application together with the other requirements. There are several factors you need to consider first to avoid getting yourself in a pool of debt.

Before you apply for a loan, here are eight questions you need to ask first: 

1) Am I qualified to apply for a loan?

This is the first question you need to ask before you apply for any kind of loan. Keep in mind that there are many factors lenders consider in applying for a loan. This includes your capacity to pay, asset that you are willing to offer as a security, and your credit score among many others. These factors will help you determine whether you are qualified for a loan or not.  

2) Where will I use the loan proceeds? 

Getting a loan to pay for your travel expenses or purchase of material things like a new iPhone are instances where loan is not highly recommended.

If you plan to apply for a loan, establish where you will use the proceeds, say to put up your own business or pursue higher education. If it is something personal and won’t benefit you in the long run, then it is best to hold that expense first and save for it instead of getting a loan.

3) How much do I need? 

One of the most common mistakes committed by OFWs is asking more than what they can really pay. This means if you are earning P40,000 every month with P100,000-worth of collateral to offer, don’t expect the bank to extend P500,000 credit to you.

Know how much you need while taking into consideration your monthly cash flow. Be realistic with your loan amount to improve your chances of approval.

4) How will I pay for the loan? 

Now that you have a realistic loan amount, the next thing you need to answer is how to pay for your loan.

Ideally, your monthly salary should cover for it, but keep in mind that you have other expenses such as remittances. Before you apply for a loan, take a look at your budget first and see if you can accommodate another expense. If you don’t have adequate amount of cash on hand, hold that loan first since there is a higher chance of getting denied.

5) Do I have to offer a security for the loan? 

There are two types of loan: secured and non-secured. Lenders would prefer secured loan since there is an assurance of payment in case of default. On the other hand, many OFWs have no asset to offer as a collateral, which is why you can opt for a non-collateral loan.

Here’s the catch: non-collateral loan means you will be charged with higher interest rate. This is the lender’s form of security since there is no asset they can recover from in case of non-payment of loan.

6) How long will I have to repay the loan? 

Loan term depends on the type of loan you are getting. Housing loan can go as much as 15 to 20 years while car loan is anytime between one and five years. For personal loans, it can go from one month to a year (or more).

When applying for a loan, make sure you’ll consider the loan term as well. The longer the term, the more interest you have to pay. Don’t forget to ask about pre-termination fee, if any, since some lenders charge a fee if you will pay off your loan before the due date.

7) What will happen if I missed a payment? 

This is another factor you need to look into. When you apply for a loan, don’t forget to ask the penalty fee in case you weren’t able to pay on time.

Tip: Some lenders may agree to waive penalty fee, depending on certain factors. Make sure you have consistent remittances and maintain a good credit standing to be able to enjoy this privilege.

8) Will the loan be beneficial for me? 

More importantly, do you really need to get a loan? The loan must be beneficial for you, say to help you grow your business. If getting a loan won’t help you in any way and you might end up swimming in a pool of debt, then it is best to hold off that application first.

Are you ready to get a loan? Balikbayad is here to help! Give us a call and let’s talk so we can see how we can help each other.