5 Things You Need to Know Before You Take Out Your First Loan

With so many payday lenders out there, many Brits are starting to underappreciate the serious nature of loan applications. However, applying for a loan is no small thing. Before you make your first loan application, there are some things you need to know.

Your Current Finances

Before you can start seriously considering any loan options, you first need a firm handle on your current financial situation. A full and thorough accounting of your finances should tell you precisely how much money you have in the bank, and what your incomes and expenses are month-to-month. With this information in hand, you will be able to make a much more informed decision about what sort of loan you are going to pursue.

Most adults would benefit from conducting audits of their own finances now and then anyway, even if they have no intention of pursuing a loan. It can be tempting to treat your bank account like Schrodinger’s cat. In other words, it’s easy to fall into the trap of thinking that as long as you don’t actually look at your bank balance, you won’t have to deal with the impacts of it being negative. Needless to stay, this is not a particularly healthy attitude to have towards your finances.

Don’t let your anxiety keep you from staying on top of your personal finances. If you are even considering taking out a loan, you presumably have something in mind to spend it on. Whether you are seeking a personal loan so you can finally renovate your home, or you are looking for a cash injection for your business, you should not be taking any money from anyone else until you understand your own financial situation in detail.

Your Credit Score

Your credit score is one of the most important factors affecting the kind of loans you can apply for and receive. Your credit score is a reflection of your reliability as a borrower. A high credit score shows that you are someone who pays their debts and pays on time. On the other hand, a low credit score warns lenders that you have had financial trouble in the past and might find it difficult to repay a loan.

Fortunately, it is easy to find your own credit score and request a copy of your report. Your credit report will contain details about any credit account you might have, from bank accounts and credit cards to outstanding loans and debts. Your credit report will also show what the current repayment statuses of these credits is. Any payments that are missed or late, or that you default on entirely will remain on your credit report for a minimum of 6 years.

Before you can put together a shortlist of potential lenders, you need to be sure that your credit score is sufficiently high to meet their criteria.

What You Plan to Do with Your Loan

You should always be careful about spending money that you don’t yet have. However, you should not apply for a loan until you have a concrete idea of what you will use the money for. Not only is it essential that you are sure a loan is the right way for you to go, but you need to know what you are going to do with the money before you can decide how much you are going to ask for.

Whether you are applying for a personal loan or a business loan, you should be doing so with purpose. If you just want to improve your financial situation, a loan is really the best way of going about it. Unless that loan is tied to a specific plan of action that will generate money – such as opening a business – taking out a loan will ultimately leave you with less money than when you started thanks to interest.

You can never plan too much when you are dealing with your financial health. Don’t be afraid to hold off on applying for loans until you have come up with a concrete spending plan.

What Alternatives Do You Have?

Before you commit yourself to taking out a loan, make sure it is the best course of action for you. Once you know how much money you are looking for and what you plan on doing with it, you will be in a much better position to decide whether applying for a loan is the way forward.

If you are considering applying for a business loan, your alternatives might be limited. Your suppliers may be able to help you out if you are going through a rough patch financially. But in terms of injecting you funds into your business, a loan from a bank or similar institution is the most reliable option open to most people.

On the other hand, if you need money for personal reasons, there are numerous other avenues worth exploring. If you are going to owe money to anyone, you might prefer it to be friends and family rather than a bank. If you are unable to repay someone you know, they are less likely to take action against you than an institutional lender like a bank.

How to Find the Right Lender

Regardless of the type of loan you are planning on pursuing, there will be a multitude of lenders for you to choose from. Choosing the right provider is imperative; there are plenty of horror stories involving dodgy loan providers. At best, a bad loan provider will make a relatively painless process much longer and more complex. In the worst cases, an untrustworthy loan provider can leave you distraught and in a worse financial position than when you started.

While choosing a suitable loan provider is essential, it isn’t exactly rocket science. Once you have an idea of the type of loan you want to pursue and the ideal terms you are looking for, it is simple enough to compile a shortlist. For example, if you are in the market for a small business loan, a simple Google search for “small business loans UK” will bring back dozens of results.

Of course, the more detail you have about what you are looking for, the more you can refine your search and the easier it will be to hone in on suitable lenders. As part of the audit of your finances, you should get a hold of your credit report. Your credit report and score will be essential in helping lenders to decide whether to accept your application or not.

Even if this is the first loan you have ever applied for, there are plenty of potential reasons you might have a low credit score. A low credit score doesn’t mean you can’t secure a loan. However, it does mean that you will have to apply to a broker like this provider, that is willing to take on borrowers with a low credit score. New Horizons is a fully accredited credit broker that connects borrowers with suitable lenders. Nine out of every ten loan applications made to New Horizons are approved. Successful applicants will receive their money within 15 minutes. Best of all, there is no credit footprint when you apply, whether you are successful or not.

With all of that in mind, you can begin searching for loan providers with confidence. This decision is one that you should take your time with. Even if time is of the essence, don’t trip yourself up trying to move things along too quickly. The results could ultimately be disastrous for you.

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