Things To Consider When Applying For Your First Loan

Posted on: 30 August 2016

Applying for your first loan for a big purchase can be daunting if you've never done a credit application before. Here are some things to consider as a first time loan solicitor. 

You Can (And Should) Boost Your Credit Beforehand

Before you apply for a major loan, it's fairly easy to boost your credit score in a matter of months. Take out a credit card and place small purchases on the card that you pay off on a regular basis. That way, when you apply for the loan, your credit history won't be completely blank. This can go a long way in building your initial credibility and reducing your rates for the loan. Try a financial planning specialist for help with credit planning. 

Secured Loans Have Better Rates

It also helps to note that if you can apply for a secured loan, this will help to reduce your rates considerably. For instance, consider placing your car as collateral for the loan; if you default on your payments, the bank can take your car as payment, but if you pay off everything on time, it can be a great way to reduce your overall payments. 

Both Salary and Obligations Matter

The loan company may consider both your salary and your monthly obligations. Even if you have a large salary, it won't matter much if your monthly payments are a significant portion of the salary. This includes things like rent payments, lifestyle choices and school debt repayments. Note that sometimes, you may need to have a cosigner on your loan, even if your salary is fairly high. 

Many Options Exist for First Timers

Finally, note that there are many different avenues that you can go through to get approved for credit when you're just starting out. Many traditional banks may be willing to take on the risk of providing you with a loan, granted that you have good personal references and a solid amount of assets. Loan companies are another resource to turn to; although they may come with higher interest rates, they also may be able to extend you a larger line of credit. There are also peer-to-peer lending options popping up online, so that you can borrow money from other individuals with varying conditions and interest rates.

The bottom line is that there are several places to try for a loan, so don't get discouraged if the first lender you approach rejects your application. A financial planning consultant can help you evaluate your options and choose the one that makes the most sense.