Borrowing money can help you do things, but the process can be complicated. Mistakes can be expensive, and they can cause your loan request to be rejected. If you need to get a loan, learn what to expect and what you can do ahead of time.
Determine the Type of Loan You Need
The first step is to figure out what you need. The type of loan you get will depend on what you plan to do with the money. Some common loan types include:
Auto loans for buying a vehicle
Home loans (mortgage loans), including second mortgages for buying a home or borrowing against equity in your home
Personal loans, which can be used for almost any purpose
Business loans for starting or expanding your business
Education loans or student loans
In some cases, you won’t have much choice - it’s not likely that anybody will lend you enough to buy a home unless you use a loan designed for that purpose. Using a loan that matches your need will improve your chances of getting approved and will keep your costs low.
Decide Where to Borrow
Shop around. Again, your choices may be limited based on the kind of loan you want: some places don’t offer business loans or student loans. Start your search at the institutions best known for making affordable loans (for example, go through your school’s Student Aid office for an education loan before you go to the bank for a private student loan).
Banks and credit unions are a good place to shop for most loans. Check with several institutions and compare interest rates and costs. Peer-to-peer loans and other sources of marketplace lending should also be on your list. There are also several websites with access to multiple lenders. Borrowing online is perfectly safe as long as you stick to reputable sites.
Some people borrow from private lenders such as friends or family. While that can make approval easier and keep costs low, it can also cause problems. Make sure you put everything in writing so everybody’s on the same page - money can ruin relationships, even if the dollar amounts are small.
Avoid high-cost loans and predatory lenders. It’s tempting to take whatever you can get when you’ve been turned down repeatedly and don’t know how else to get a loan. However, it’s not worth it—they’ll lend you money, but you’ll find yourself in a hole that’s difficult or impossible to get out of. Payday loans and rent-to-own programs tend to be the most expensive options, and loan sharks can be outright dangerous.
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