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Beginner's guide to loans: Dos and don’ts

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 Beginner's guide to loans: Dos and don’ts  

 

A loan is an agreement to borrow some money and pay it back, with interest, over a period of time. It is easy to apply for a loan. However, the bank may or may not accept it. To avoid such a case, there are some more dos and don’ts you need to keep in mind. Here is a look:

 

1. Get your credit score: A credit report is a record of your financial history, specifically borrowings and repayment. The record contains details about previous loans and loan applications, employment record and other financial details. It finally calculates a credit score. Higher the score, greater is your chance of getting a loan. In contrast, if your credit score shows a bad history, then your loan application may be rejected.

 

2. Research: In accordance with your credit score, research thoroughly for available loans that fit your needs. You can get a secured as well as an unsecured loan. Unsecured loans do not ask for collaterals. However, remember, you will have to pay more interest for an unsecured loan. Also, more money can be availed against secured loans as they are taken against a collateral security. Home loans or car loans are secured loans as they are based upon the asset, which can be repossessed by the lender on nonpayment of loans.

 

3. Correct loan amount: Only seek a loan for an amount that you actually require for a given purpose. This is because availing a loan lowers your credit score. A low credit score makes it hard to secure fresh loans in the future. So be very careful while applying for a loan. Also, do not apply for a loan unless you are sure. Applying for loans that don’t get approved will also lower your credit score.

 

4. Timely repayment: Do make loan repayments in time to secure an early closure and end of your debt. Late and irregular repayments, financial indiscipline or frequency of loans hit your credit report and can hurt your chances in securing a loan.

 

5. Keep lenders engaged: If facing difficulties in repaying loans, do not hide your presence, but confide with the lender about the situation. Realizing your difficulties, chances are that your lender will help you restructure the re-payment schedule.

 

6. Don’t fall prey to suspicious lenders: In the hope of finding easy loans, don’t fall victim to schemes, which offer you easy loans at a higher interest rate. In trying to avoid documentation and checks, you can lead yourself to lenders who could exploit your unwillingness to go through a process to secure a loan. You may find yourself in trouble.

 

7. Payday lenders: There are some lenders, who issue loans to you in the time period between your paychecks. Avoid these as they can charge high interests. It is advisable to not go for payday loans as you could end up paying very high interest.
 
 
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