Looking for loans is never easy, especially if you’re a first-time borrower. You should spend a considerable amount of time searching for good lenders. Someone or someplace that will understand your needs and provide you with manageable terms of payment that suit your budget.
For first time borrowers and experienced ones alike, a casual skim through the Internet is not enough for finding trusted lenders. Moreover, the conditions and regulations borrowers have to comprehend and go through can be quite puzzling.
Before we get into how you should approach borrowing money for the first time, here are the type of loans you should note.
Types of Loans
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Fixed-term loans
Users commonly choose this process. Fixed term loans dictate that a borrower should commit to a fixed monthly repayment over a course of time, for instance, 12, 24, or 36 months. The shorter the time span is the higher you’ll pay per month. Yet, the bright side here is that shorter plans have lower interest rates than long term ones.
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Fixed amount loans
This type solely depends on your monthly income and the strength of your credit history. The two are directly proportional. The better your income and credit history are the higher your limit will be.
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Fixed interest rate
Fixed interest rate loans mean that the percentage will remain the same throughout the repayment process. This is the major case with personal loans. However, there are fewer cases with changing rates.
If you think borrowing is always tiring. Think again. Right now, there are many services around the world that strive to facilitate loan regulations and repayment periods, along with making the entire process more feasible. This guide has everything you need to know as a first-time borrower.
Your Checklist as a First Time Borrower
1. Let your budget leads you
Always think of how you’ll give the money back. When you create your budget and organize the payment terms accordingly, you considerably cut down the requirements. To plan your budget, you should calculate your income and monthly bills as well as due credit card payments.
After jotting down these points, you’ll be able to determine your expenses and what you can afford. This small analysis will show you how much money you can save and how much you’ll need to borrow.
It’s vital that you pick a lender that adheres to your repayment periods and doesn’t impose too many obligations that you find restricting. If it’s not comfortable, don’t feel pressured to take it. To learn and review several lending options and competitive savings, click here to check out Instabank, a digital bank based in Oslo, Norway and is also operating in Finland. Choosing a lender may take quite some time, but further research will ensure you’ll get the best deals at competitive rates.
2. It’s better to have a credit card
Having a credit card makes it easier to have a credit history. This will act as proof of how much you earn per month and ultimately shows your prospect lender that you are capable of returning the money. Also, having a credit history will allow the banks to calculate an accurate debt to income percentage.
Think of it as an attempt to play the odds. If you are lucky enough to have a credit history that shows commitment and prompt payment of bills, then prospect lenders are more likely to consider giving you the loan.
3. Watch the interest rates
Interest rate is one of the key factors determining the size and repayment of any loans. Double-check the annual percentage rates and detect whether they are likely to cause problems in the near future.
While you’re doing your thorough research, make sure to follow all the repayment plans closely and determine which one suits you best. Also, pay close attention to the final numbers stipulated in your contact with prospect lenders.
4. Be very detail-oriented
Let’s get it out in the open, the number is intimidating. First-time borrowers do not have the best experience in reading the fine print of contracts, or understanding ratios and numbers.
So, they should read all the terms and conditions carefully, look for areas where problems may arise, such as terms of interest rates, penalties for late payments, etc. Remember that you can always reach out to the lender with any inquiries you may have.
5. Unleash your inner fact-checker
Ask yourself the following questions: Do I need to borrow money? If yes, how exactly will I spend it? While loans are great lifesavers, they can also be potential burdens.
Make sure you absolutely need this money. Then, as we’ve suggested in the points above, go through everything with extensive care.
Choose between options that accommodate your budget, your needs, and your speed of repayment. Check that you’re getting the best deal possible on the market. Finally, it never hurts to take a look at the reviews of the bank you’re about to commit to.
Other Things to Look For
- A service provider to help you create and build your credit profile if you don’t have any.
- Look for a potential lender who could value you, even if you don’t have a credit card or credit history.
- Clear, easy to follow application and requirements that doesn’t confuse you.
Finally, we believe that after following the aforementioned tips, you’ll be ready to apply for your first loan. One last pro tip is to never borrow more than you can repay. This is the golden rule you should focus on before you begin your search for prospect lenders.
While it’s important to find a trustworthy service provider, nothing is as crucial as how you plan out your repayment process. Numerous banks all over the world are offering tempting packages and services for their users. When you’re doing your research, make sure you fan out your options.
Another thing is to think about your long term commitment and whether you’re comfortable with it. Value the money you’re spending over the interest rate and penalties of delayed repayments to make an informed decision. Lastly, do not hesitate to talk to a friend in financial services, your accountant, or even your prospect lender about your concerns.
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Related articles you may find interesting:
- “What are Interest Rates?“
- “What is Credit Score?”