Getting a Loan
A loan is a finance mechanism used to cover gaps in cash flows for a variety of purposes, from paying down high-interest debt to completing home improvement projects. Loans can be secured or unsecured and are typically classified as either revolving (in which funds can be accessed on a revolving, as-needed basis) or term (in which a lump sum is disbursed upfront and repaid over a set period of time). Choosing the right loan for your needs requires a clear understanding of the purpose of the borrowing, the terms and conditions, and how much it will cost to pay back.
The most common type of loan is a secured loan, such as a mortgage or auto loan. Secured loans require the borrower to pledge something of value, such as a home or car, as collateral for the loan, in case they default on the repayment obligations. This reduces the lender’s risk and may allow them to offer more favorable interest rates than unsecured loans, which do not.
To qualify for a loan, lenders often check a borrower’s credit history to evaluate their ability and willingness to repay the borrowed funds. Lenders also look at a borrower’s current debt-to-income ratio (DTI), which is the percentage of a borrower’s monthly income that goes toward paying off all outstanding debts. The higher a borrower’s DTI, the more of a financial risk they pose and the more likely they are to default on their loan payments.
Most lenders prefer to lend money to borrowers with good or excellent credit scores and a strong track record of responsible debt management. Lenders also consider the borrower’s income, as well as their expenses and other debt payments, to determine whether they can afford to take on additional debt each month. If a borrower’s income falls below a lender’s minimum income requirements, they may be unable to qualify for a loan or will need to agree to more restrictive terms.
Getting a loan is an important decision that should not be taken lightly. Borrowers should understand the purpose of their loan, how much it will cost to pay back, and any other terms and conditions associated with it before making a final decision. It’s also wise to get prequalified for a loan before applying, as this will give them an idea of the rates and terms they can expect to receive from different lenders.
The AlabamaSAVES Program has acquired a participating loan from the Mercantile National Bank Building Rehabilitation Participating Loan Program to support the completion of a suite of energy efficiency measures in the historic downtown Mobile, AL landmark. The project will result in a significant reduction in the building’s energy consumption, which in turn will significantly lower the building’s operating costs and reduce its impact on the environment. Click here to learn more about this exciting project! The AlabamaSAVES Program is thrilled to be part of this great partnership.