It seems like there are a lot of mixed opinions out there about loans and credit. Some people say it’s a money-making machine where the borrowers always lose. Others, however, say that if you do it responsibly, it’s incredibly beneficial to your life and your credit score.
But how do you know for sure?
If you’re thinking about getting your first loan, there are a couple of things you need to know first. Keep reading for all the details!
Things to Know About Getting Your First Loan
Getting a loan isn’t a bad thing. It can really help you out of a tight spot, help you get something you need, and improve your credit score. However, loans can also have negative consequences.
Follow along to understand everything you need to know about your first loan.
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Interest Rates
If this is your first loan, it’s possible that your credit score isn’t very high yet. Bad credit and no credit can be equally detrimental. Having a low credit score will up your interest rate with most lenders.
Your interest rate determines how much of a percentage you owe on top of your principal amount. Over a span of three to five years, a single percent difference in your rate could equal hundreds of dollars.
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Your Credit Score Matters
As we suggested above, your credit score and history play a large role in how much you can get approved for and what your interest rate will be. Lenders want to see that you’re reliable and responsible about making payments. The higher your credit score is, the more money they’ll trust you with.
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Understand the Terms of the Loan
When you get your first loan, you need to make sure you understand the terms of the loan. This includes:
- How long is the loan for?
- What is the APR (interest rate)?
- Are there late/failed payment fees?
- Is there a penalty fee for paying the loan off early?
- Are there loan initiation fees?
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You Can Get a Loan Without a Credit Check
Next, you should know that you can get personal loans with no credit check. This can be advantageous for people with poor or zero credit and also individuals with no credit history, especially when they really need the money.
However, these types of loans often have a higher APR, since you are a higher risk (on paper at least).
Video – What is Your Credit Score?
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Personal Loans Can be a Good Way to Consolidate Debt
Some people very wisely use their first loan to consolidate debt. Small credit card fees, school payments, hospital debts, etc. can add up to a lot of money going out the door each month. Using a personal loan to consolidate all of that debt onto a single payment will help in several ways.
First, you can really save money on your monthly bills. Second, you will be able to clean up your debt into a single loan. And lastly, you may be able to get a lower APR than most of those individual payments.
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Loans Aren’t Long-Term Solutions
When you get your first loan, realize that loans aren’t the answer for everything. Make sure you don’t get into the habit of living your life on credit. It provides a short-term gain but could end in a long-term loss on a massive scale.
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Loans Can Be a Lifesaver
The above being said loans can sometimes be a saving grace. For example, a financial medical emergency, car emergency, or family emergency may call for a necessity for immediate funds.
It may not be your ideal solution, but it may be your best option.
Be Smart
When you go to apply for your first loan, just remember to take your time and not make any impulsive decisions. Remember, the decision you make on any loan will affect you for years to come.
And remember, for more information on life and finances, be sure to check out the rest of our articles!