Fun fact: the first loans ever given were back in 2000 BC, when Assyrian, Indian, and Sumerian merchants gave out loans of grain to farmers who ferried goods between locations. These loans then continued throughout Roman times, and the rest is history. 2000 years later, loans are one of the pillars of our financial society. We often lend money to those who need it, and a business has sprung up around interest. Taking out a loan is a simple, straightforward experience, but it’s not always as easy as it could be. Here are 10 things to remember when taking out a loan.
1. You can take out different amounts
Many think that just because their circumstances aren’t as dire as someone else’s, they don’t qualify for a loan. This isn’t true, however. You can take out various amounts for your loan depending on your requirements. Lenders offer anything from £1000 loans all the way up to £20,000 loans, and sometimes more depending on your particular circumstances. No amount is too great or too small (unless it’s truly insignificant or colossal), so ask your lender about amounts!
2. You’ll need a good credit rating
It’s easy to forget that when you’re going to take out a loan, you’ll need a good credit rating. The fact is that most lenders will perform a credit check when they’re assessing your eligibility. This is unfortunate if you have struggled to repay loans in the past, so it’s worth getting up to speed on your credit score. Try to repay any outstanding debts or bills as quickly as you can, and make sure you’re on the electoral register. You might not get very far without a good credit rating.
3. Loans will affect that rating
Taking out a loan will actually have an impact on your credit score. It’s classed as credit, which means that if you fail to make repayments, you may find your credit score is negatively impacted. Conversely, however, if you make repayments on time, then your credit score will improve as a result. Remember that whatever happens, taking out a loan is a permanent decision that will have lasting effects on your financial health. That’s why it’s so important to be informed.
4. Your income will be assessed
You may not be approved for a loan if you don’t have a regular income you can prove. This is to prevent a poor debt-to-income ratio and ensure that you have the means to pay back the loan you’re being provided with. If you’re not earning a regular salary, then you may stand a chance of being rejected for a loan. Unfortunately, it’s often the case that those without regular salaries are most in need of loans, but this restriction is in place to protect your financial health.
5. Many loans are secured
Be sure that you read the terms and conditions of your loan extremely carefully. Many loans are secured against assets, which means you may have to put up the value of your home or vehicle in case you can’t pay. If you apply for a loan without realising or acknowledging this, you could find yourself in serious trouble when it comes time to repay the loan. Of course, a secured loan can be a great boon, so if this is what you want, just make sure you’re aware.
6. You have options
If you don’t like a particular lender’s terms, then you’re fully within your rights to look elsewhere for your loan. There’s absolutely nothing stopping you from telling them you’re no longer interested in applying and taking your business somewhere else. Some lenders will try to pressure you into completing the application process, but if they do, then you know they’re unscrupulous and not a good lender anyway. Always remember that you have options.
7. The terms and conditions can hide nasty surprises
If a loan looks and seems too good to be true, then there’s a decent chance it is indeed just that. Obviously, many of us don’t read the terms and conditions of services we use or products we buy, because they’re long-winded and full of legalese. However, when it comes to loans, it’s incredibly important to do so. Many companies like to hide truly nasty surprises in their terms and conditions, then not tell you about them openly during the application process. Don’t fall for it.
8. There are many different types of loans
One particular kind of loan may not be right for you. That doesn’t mean that a loan isn’t the right option, full stop. You should consider lots of different kinds of loans if you think you need to borrow money. For instance, if you only need a little bit of cash before the next paycheck and you’re not in long-term financial trouble, then you could consider a payday loan instead of an extended borrowing plan. Remember that a different kind of loan could serve your needs better.
9. You don’t always need to borrow from banks
Banks aren’t the only companies providing loans. Building societies and private licensed companies can also offer up loans, and you may also want to engage with peer-to-peer lending, which unites those with money with those looking to borrow it. If you’ve had a negative experience with a particular bank, it might be worth shopping around to see if anyone else is offering a similar loan, because there are plenty of different providers other than banks out there.
10. A credit card could be better
Depending on the amount you’d like to borrow, you may find that credit cards offer better repayment plans and rates than loans do. It’s worth shopping around to make sure you’re getting the best deal in this regard. This is because credit cards frequently offer introductory deals that involve not charging you interest for a new purchase (as long as you pay back your debt within the stated period). Most loans don’t offer this, so check whether a credit card is better for you.