A First Time Borrower’s Guide to Personal Loans

If you have never taken out a personal loan before, it is important that you know what to expect. This can be pretty overwhelming to someone who doesn’t have any borrowing experience at all. A person loan can be extremely helpful or harmful, depending on how responsible you are. When you take the time to get this information, you will be able to get the funds you need without any negative consequences.

How it Works

A personal loan is a lump sum that you are given by a bank, credit union, or private lender. You will be required to pay back the principal amount of the loan plus interest. You aren’t required to put any money down, as it is all paid at the end. There will be a specific date that you will have to pay the loan back by, which will be stated in the contract you have with the lender. Your interest rate could anywhere from 3 percent to north of 10 percent, depending on what your credit is like. Not everyone gets approved for these loans, and there are many different factors that a lender will use to determine your worthiness as a borrower.

Qualifying for a Personal Loan

There are numerous things that the average lender will look at to determine whether or not you should be approved for a personal loan, including:

  • Your credit: The overall state of your credit will be just one thing that lenders will take a close look at before approving your application. Keep in mind that while a lack of credit isn’t especially good, it’s not necessarily bad either.
  • Ability to repay the loan: The amount of money that you make with each of your paycheques is something else that matters a lot when applying for a loan. The lender must determine that you are able to pay back the loan on time. You will have to submit proof of your income when applying for a loan.
  • Job history: Even your employment history will matter when you want to get a loan. Those who have kept the same job for a while have increased odds of approval with most lenders.

Choosing a Lender

As a first time borrower, it can be easy to get carried away and select the first lender that you come across. You will instead want to take your time and research the various options that are available. A good lender has an impeccable reputation, so keep that in mind when doing your research. Whether you choose a bank or a private lender, you need to do your homework before making a decision. Choosing the wrong lender for your loan could mean spending far more than you really needed to.

Finding a Reasonable Rate

You should never underestimate the power that your loan’s interest rate has when it comes to your ability to repay your debt. A low rate means that you are much more likely to pay back the money you owe by the specified date in the contract you signed. The best way to get a good rate on your loan is by getting quotes from different lenders. This will ensure that you don’t pay a ridiculous amount of money on top of the principal.

Read the Contract Before Signing

The “fine print” in the contract that you are handed by your lender is very important, so you need to look over it carefully. The same goes even if you are getting a loan online. Read every single letter of the contract, digital or otherwise. This contract will tell you how much the loan is for, when it needs to be paid back, and any fees you are required to pay. It will also specify the interest rate on your loan. If you find that certain terms are not to your liking, you can try to negotiate with the lender. A lot of lenders are willing to negotiate with approved borrowers to a certain point.

Paying Back Your Loan

It is absolutely essential that you pay back your loan as quickly as possible. You don’t want to have your credit trashed because you failed to fulfill your obligation to the lender. If you think you might be late paying back the money you borrowed, contact your lender immediately. There is no good that can come from keeping them in the dark.

Who Should get a Personal Loan?

Anyone who needs money for home repairs, car repairs, a vacation, wedding, or something else entirely should think about applying for a personal loan. Just be careful when borrowing money, regardless of who you get it from. Be patient and go slow through this entire process, especially if it is your first time. You don’t want to make any mistakes that you will regret later.