Financial literacy is important to everyone. One of the elements of financial management is knowing how to borrow and manage debts.
As a beginner, it is important to understand several things about lenders before borrowing for the first time. You should also know that some traditional lenders might be reluctant to lend money to new borrowers or people with bad credit.
The good news is that today we have hundreds of lenders who are doing things different from traditional financial institutions. Let us take a look at some of the things to keep in mind as a beginner borrower:
Types of loans
There are different types of loans offered by various lenders. For example, personal loans can be categorized into two. The first one is called a secured loan where the lender requires you to deposit an asset as collateral.
The second type is known as an unsecured loan. An unsecured loan is different from a secured loan in the sense that the lender won’t require any form of collateral to approve your loan. Most unsecured loans are short-term with relatively high-interest rates.
Turnaround time
This is also another important thing to note – especially when you are borrowing for the first time. Different types of loans have different turnaround times. For example, small money loans Raymondville TX families access will likely need to be repaid in full within a few months.
You should, therefore, inquire from your lender how long they will need you to clear the whole amount before you take the loan. Failure to repay your loan within a stipulated period will negatively affect your credit score as well as the loss of collateral (in case of a secured loan).
Credit score
Most lenders use your credit score to determine to decide whether they will lend you or not. A good credit score increases the chances of your loan application getting approved. A bad credit score will on the other hand lower your chances. However, there are lenders who specialize in dealing with people who have bad credit,
It is also important to note that your credit score will determine how much interest rate will be charged on your loan. For instance, you are likely to get a lower interest rate if your credit score is perfect compared to someone with a poor credit score.
Hidden charges
Some lenders are used to attract borrowers with lower interest rates on paper without fully disclosing extra charges. As a first time borrower, it will be wise to find out from the lender if they have any hidden charges before you proceed with the application. In case there are any extra charges, do the calculation and decide whether the interest rate is within the market value.
Bad credit loans
As mentioned earlier, some lenders take great precautions when it comes to lending money to people who have bad credit. Nonetheless, there are also companies that specialize in lending money to people who have bad credit. It would, therefore, be important to look for such companies if you know your credit score is not perfect.
Generally speaking, there are situations when we are forced to borrow money to fulfill certain financial obligations. It is good to understand various things concerning loans such as lender requirements and the turnaround time to repay the loan.
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