The catchy advertisements from banks and other lending institutions may make loans seem attractive and easy to get. However, they actually call for great responsibility on the part of the borrower. If you’re thinking about getting a loan, you need to have a good understanding of your financial situation; you need to be aware of your net worth and your credit score.
What’s Your Net Worth?
At its simplest, your net worth is the difference between your assets and your liabilities. Knowing this figure helps you to determine your wealth and track your financial progress. It also helps you to put your debt in proper perspective. If you have $20,000 in debt and $100,000 in assets, you’re in a pretty decent position. If the figures were reversed, you would be in serious financial trouble.
Knowing your net worth can also tell you whether or not you’re likely to be approved for a loan. Lenders will pay special attention to your assets and existing liabilities in an effort to determine whether you can take on more debt. If you have a good relationship with your lender, you may be able to negotiate lower interest rates on the basis of high net worth.
It should be noted that online installment loans should be approached with extreme caution. These loans are often approved quickly but they come with very high interest rates and should only be sought in cases of emergency. They should not be part of a long-term financial plan. You should only apply for one of these loans if you know you will be able to pay back on time given the high fees for late payments or default.
What’s Your Credit Score?
In addition to your net worth, lenders will use your credit score to determine whether you qualify for a loan and how high your interest rate should be. That is because your credit score indicates how likely you are to make payments on time and whether you will handle new credit responsibly.
People with high scores often get loans with lower interest rates. You need to know your credit score before you apply for a loan so you can take steps to improve it if necessary.
According to the Consumer Financial Protection Bureau, the typical credit score includes things like your bill-paying history, your current unpaid debt, the number and type of loan accounts you have and how much of your available credit you are using. You should know that you have more than one credit score. Some websites offer free credit report services but you can also check your credit card or loan statement to see the score from your financial provider. Credit counselors and credit reporting companies can also assist you. Scores may vary depending on the data used and the scoring model, among other factors.
To build and maintain a good credit score you should definitely pay your loans on time every time, try not to get too close to your credit limit, and have a long history of good credit.
It is important to know where you stand financially before going into a bank or other lending agency for a loan. Lending officers will carry out thorough checks when they receive your application and you don’t want any surprises when they get back to you.