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What to Know About Getting a Loan for the First Time

There comes a time in most people’s lives when you find it necessary to go through the process of applying for a loan. It may be for a car, a home, or to help pay for school tuition, but the underlying process of getting a loan is what fuels the consumer economy of the United States. You might not know how to think about this new financial aspect of your budget though, so here are a few things everyone should understand about the American credit and debt industry.

Into the Heart of Finance

Loans are legal instruments based on equitable agreements between lenders and borrowers. Lending is the principal economic activity of finance, which is the practice of providing funds for a price. In other words, loans are like renting money. You pay for the privilege of having it and then have to return the original item (money) as well. Interest is the rental cost and although interest rates have been low for several years now that may be starting to change in 2017.

Determining Financial Needs and Goals

The best approach to the lending process is to think of it as being part of a larger project. There must always be a clear need and a financial objective. Someone who applies for a loan just because they are short on cash will run a risk of getting into an endless cycle of debt, which ultimately causes your financial demise. Before shopping for loans, prospective borrowers should establish a need, for example: buying a reliable car that will transport them to work and to school. Once the need is established, the objective can be formulated, and it should be more than just paying off the loan. One objective could be setting aside money for repairs and improvements so the car can be sold at a good price in the future. Think smart about your next big purchase and make a plan for how you plan to make it last. See: The Wealthy Buy Assets, the Poor Buy Liabilities, and the Middle Class Buy Liabilities Believing They Are Assets for more info.

Understanding Credit Scoring and History

For the most part, getting a loan is highly contingent on credit score and financial history. Young applicants may learn that their credit history is not sufficient to secure a loan at a competitive rate (or they may not be able to get a loan at all). Some banks and credit unions will take a risk in lending to someone without a credit history, but the loan terms will not be too favorable. Lower loan amounts and higher interest rates are not uncommon among young borrowers and both credit scores and histories are boosted once the first loan is repaid.

Improving Credit History

Young loan applicants who can wait a few months before getting a loan may boost their credit history by applying for a store credit card and making a couple of purchases with it. Within 90 days of timely payments, the credit score will have improved to a more favorable level.

In the end, getting your first loan should be approached as a process and not be rushed. Going online and reading the fine print of loan programs is highly recommended.

If you are interested in Lending and or Banking as a Career Succeed At Eagle programs for MortgageLoan Office Jobs can also help to better your understanding of modern finances.

About the Author:

Eileen O’Shanassy is a freelance writer and blogger based out of Flagstaff, AZ. She writes on a variety of topics and loves to research and write. She enjoys baking, biking, and kayaking. Check out her Twitter @eileenoshanassy.

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