Investing in the future is expensive. Whether it’s an education, a house or a car, a loan is sometimes the only option to get an expensive item. As a youth, it may seem almost impossible to get approval for a loan without parental support. Having said that, understanding the ins and outs of the lending process is a great help in getting financing for the bank on your own.
The loan process
When considering a loan, it is important to look at the situation from the bank’s point of view. For the bank, loans are a major source of income. The bank cuts you a check of a certain amount (principal) and you give it the same amount as well as interest. The payment of interest is the cornerstone of most banks.
Loans are not gifts, and banks are not charitable. The main concern of a bank is whether or not you can pay off your debt. Banks judge potential borrowers based on a number of key elements. Among them:
- Who: Who are you? What do you have to offer the bank?
- What: What is the money for? A bank is much more likely to lend money to a person wanting to add a home (and add value to the property) than one who plans to spend that money on discretionary or disposable property.
- Where: Where you are trying to get your loan can be a determining factor in whether you get it or not. Lending criteria can vary between a conventional bank and an online financial institution, as well as between different geographic regions.
- When: The terms of the loan – the interest rate and the loan term – determine when the bank can begin to make a profit and the amount of its profit.
- How: Can the bank be sure to repay the loan according to the conditions? How can you guarantee the repayment or at least cover the risk of the bank in one way or another?
Get a loan without a parent’s signature
Who are you
Who you are is actually an important part of whether the bank will consider you a viable borrower. Believe it or not, you are judged from the moment you walk through this door according to one of the few tools available to the lender: your appearance. Then dress the party: if you want to be treated like a professional or a manager, dress as such.
Rightly or wrongly, the lender will use their prejudices and preconceptions to determine if you represent a reasonable risk to the institution. Also, do not be surprised if the bank checks your background. They will certainly check your credit history. (For more information, see The importance of your credit rating .)
What you plan to do
Since this is money from the bank, it’s also up to the bank to decide what you plan to do with that money. If you need a bank loan to finance your gambling, it is likely that you do not get a lot of funding. If, however, you try to buy or improve an asset, such as a car, a house or your business, banks usually see this as a benefit.
Where do you plan to borrow
There are alternatives to obtaining a loan from a traditional bank. Online credit is quickly becoming a popular option due to increased competition and faster loan approval. With online lenders, fraud awareness and reputation become major concerns. Always make sure you only deal with reputable companies and do not easily give confidential information to insecure or irresponsible companies. (For more options, see The 7 Best Personal Lending Sites .)
Wherever you are in the world can also affect loan approval. It is a question of rarity. If you are trying to get a loan in an economically disadvantaged region, the banks will certainly be much more selective about who they are lending money to than in a region with strong economic growth. By taking this into consideration, you can get a much more realistic view of your prospects.
When you pay
When it comes to deciding which loan to accept (or in the case of a bank, what to offer), the terms of the loan are the most important factors. Some of the items that may vary are the interest rate, the loan term and the type of loan. The interest is the premium you pay to the bank for using its money. Lower interest rates are therefore better for borrowers. The length of time corresponds to the time you will have to repay the loan, so again, a lower number is preferable: this will result in a reduction in the overall interest expense.
The type of loan you are considering is also important because it can be an important factor in the amount of money you pay during each payment period.
How they decide
The bank will not pay you a cent if you can not afford to repay it later (or if you do not have enough assets to guarantee your loan). That’s why they look at some key elements of your finances:
- Collateral: What are your main assets that the bank can seize in case of default of your loan? Typical warranties include your home or car.
- Credit: Your credit comes into play when you apply for a loan. If you have bad credit, it will be difficult to get a loan unless you are willing to accept less attractive loan terms (such as higher interest rates and lower limits).
- Income: Your lender will want to make sure that you can afford to repay your loan. Higher income means that lenders are more comfortable with lending money. (For more, see Increase your disposable income . “)
If you do not seem to be an ideal candidate, it is likely that you end up with higher interest rates and fewer loan choices. And if you have few assets, if you have bad credit and / or are struggling to cut yourself down, it is likely that the lenders will not call you back.
The final result
Let’s face it, the reason young people generally need a co-signer for a loan is because a co-signer usually has the five things that banks are looking for. The best way to convince lenders to fight against you is to make sure that you address them positively.
- Who: Dress the room when you are going to apply for a loan and make sure you do not have a skeleton in your closet that lenders will not be happy to see.
- What: Lenders do not just give money. Make sure your needs are legitimate and financially justifiable.
- Where: Review the online lenders you are interested in to ensure their good reputation and avoid seeking financing in areas where bank money is scarce.
- When: Only accept the loan terms with which you can live and understand what you will pay at the end of life.
- How: Think about the assets you have that can be used as collateral, accumulate good credit before you go to a lender and make sure you have a viable plan for repaying the loan.
When you know what lenders are looking for, you may be able to match your approach to these essentials. If you do not have the time to build a strong credit history and you have no collateral to offer, the best solution may be to get your parents’ signature to avoid higher interest rates or a total rejection.