Loans are an essential part of every person’s finances. They provide relief during times of financial strain and can be handy in catapulting one’s business ventures into success. At the same time, most people would agree that the process of applying for a loan is daunting. The fear of getting rejected and uncertainty over ability to repay often weigh heavily on a person’s mind.
As a first time borrower, that anxiety is much higher, since it is hard to know what to expect. However, there are some pointers that can help you to navigate the process successfully and have peace of mind.
Find the right lender for you
There is no shortage of loan providers in the modern market, so making your pick should be a matter of careful consideration. Banks have differing appraisal processes, repayment processes and customer education policies. Owing to a high number of institutions struggling to outdo each other, it is possible to find attractive loan packages aimed at attracting customers. You should go for a reputed institution that offers attractive rates and offers financial management education to customers.
Read and understand the loan contract
When seeking to take a loan, it is important to do your due diligence to ensure that you understand the terms fully and that you are not caught off-guard by undisclosed or hidden stipulations. Before signing for the loan, you should understand the full details of the loan agreement including the interest, repayment period and related costs. Financial experts particularly advise new borrowers to look through the fine print, since in many cases, there are hidden stipulations that have potentially costly implications.
Weigh your need for the money carefully
When taking up a loan, it is important to ensure that it is going towards a worthy cause as opposed to financing unproductive endeavors. It is not uncommon for people to take loans to cover bills and home expenses instead of balancing their checks to cater to these. This tends to create a vicious cycle of debt that is detrimental to one’s financial stability in the long term. In many cases, these needs can be catered to through savings and careful financial reorganization.
Figure out the type and size of loan that you need
Different types of loans come with different qualification and repayment stipulations. It is important to ensure that the loan you are taking is best suited to solve need that you are looking to solve. For example, a personal loan to fund business investments might not be the best decision since many banks have special offerings for businesses, that have better terms. Additionally, the size of the loan you go for should match your ability to pay on time. Just because you qualify for a certain amount does not mean you should take out the full amount since you will be stuck paying interest on a non-performing capital.
Check your credit score
Your credit rating is the most important consideration that your potential financier uses to determine how worthy of their money you are. Your credit rating is determined by a combination of metrics including your debt-to-income ratio and debt repayment history. In order to maximize your chances of receiving a loan, you should work to maintain your credit score high by repaying your credit card on time and keeping a healthy amount of debt. Repaying your existing debt before applying for a loan is in some cases a great strategy to increase your loan eligibility.
Design a repayment plan
Failure to repay your loan could lead to a range of undesirable outcomes including lowering of your credit score, catastrophic asset repossessions and even legal problems. You should not wait until the loan is disbursed to start drawing up a repayment plan, this should be done beforehand. Account for all the costs including the annual percentage rate and associated processing fees. You should also understand that there are potentially costs such as late installment penalties, and even prepayment fees for paying off your loan earlier than stipulated in the loan terms. accounting for all the expected costs enables you to weigh against your expected future income.
Talk to a professional
Talking to a seasoned financial expert will help you to acquire all the knowledge about loan providers that you need before engaging them for a loan. This preempts the risk of missing out crucial information and saves you research time. An experienced credit officer knows all the different types of loan offerings, the major industry players and customer experiences with each of these. They are also able to appraise your financial records and advise on the best course of action to maximize your loan eligibility.
Resources:
1. https://www.makemoneydirectories.com/looking-for-lending-a-few-tips-for-first-time-borrowers/
2. https://www.thestreet.com/story/12905126/1/an-everything-guide-to-getting-a-loan-for-first-time-borrowers.html
3. https://www.moneyunder30.com/things-to-know-before-you-take-out-a-loan
4. https://oinkmoney.com/blog/first-time-borrower-6-things-you-should-know-before-applying-for-a-loan/
