Taking out a loan for the first time can be pretty daunting. However, it can also be a game-changer when it comes to dealing with a financial crisis or pursuing an exciting opportunity. Whether you're looking for a substantial amount of money, starting a business venture, or facing unexpected expenses, a first-time loan can give you the financial boost you need to make things happen.
At some point in life, we all encounter unexpected financial challenges that require some extra support. The key is to handle these situations in a way that doesn't jeopardise our long-term financial goals.
In this blog post, we'll delve into why people opt for loans and some important factors that every borrower should keep in mind.
Top 3 Reasons People Take Out a First-time Loan
According to a survey conducted by YouGov Plc for Tesco Bank, the three most common reasons people take out their first loan are:
Family Finances (55%): Many parents with a child aged 4 or under find themselves taking out their first loan to help them manage their finances during this crucial period.
Buying a Car (31%): Nearly a third of first-time loans are used to purchase a car. This allows you to own the car right away while paying it off in instalments
Debt Consolidation (27%): Depending on your circumstances, consolidating your debts with a loan can simplify your repayment process and potentially save you money on interest and other charges.
Important Factors to Consider When Applying for Your First Loan:
Tesco Bank highlights some essential factors to consider before taking the plunge and applying for your first-ever loan.
Repayment refers to the process of returning the borrowed money to your lender over a specified period, as outlined in your loan agreement. It involves making regular payments that usually cover both the principal amount (the initial loan) and the interest (the cost of borrowing). Before deciding to take out a loan, it's crucial to ensure that you can comfortably afford the monthly repayments.
The loan term refers to the predetermined period within which you're required to repay the loan. This period is set when your loan gets approved. Since it dictates how long you'll be repaying the loan, it's important to consider the possibility of any changes to your financial situation. According to Tesco Bank's research, 48% of people believe that the loan term is a critical factor when applying for their first loan.
Fees and Charges
Aside from the interest rate, borrowers may incur additional costs in the form of fees and charges when taking out a loan. These fees cover administrative, processing, and service-related expenses that the lender incurs during the loan process. Surprisingly, only 18% of the surveyed individuals considered these fees and charges when applying for their first loan.
The interest rate on a loan represents the percentage of the loan amount that the lender charges you as the cost of borrowing money. The interest rate you're offered will have a direct impact on the total amount you'll end up paying for your loan. A higher interest rate means paying more interest over the loan's term, while a lower interest rate reduces the overall interest expenses.
Interestingly, 18% of people surveyed by Tesco Bank mentioned that "high interest rates" could deter them from getting a personal loan in the future.
Tips for Responsible Borrowing:
Now, let's talk about some tips to ensure you borrow responsibly:
1. Only borrow what you need: Assess your financial requirements carefully and avoid borrowing more than necessary. Taking on excessive debt can create unnecessary financial strain in the long run.
2. Plan for repayments: Before getting a loan, make sure you have a realistic repayment plan in place. Consider your income, expenses, and future financial goals to ensure you can comfortably meet your repayment obligations.
3. Compare interest rates: Shop around and compare interest rates from different lenders to find the most favourable option. This can potentially save you money over the life of your loan.
4. Read the fine print: Before signing any loan agreement, carefully read and understand all the terms and conditions. Pay attention to any fees and charges, as well as any additional requirements or implications.
Remember, taking out a loan for the first time can be a significant financial decision. By considering these factors and borrowing responsibly, you can make the most of this opportunity while safeguarding your overall financial wellbeing.
Need help with a first-time loan?
Applying for a first-time loan with Tesco Bank is straightforward. Apply online, and they'll aim to let you know right away if you've been successful.
Be aged between 18 and 74 and aged under 75 at the end of your loan term
Be in employment with no probationary period, or have a regular income, e.g. pension
Have lived in the UK for at least 3 years
Have a UK personal current account
Sometimes they need more information from you following your application, so they'll be in touch if this happens. Once approved, they use Faster Payments to send the money direct to your bank account - generally within 48 hours.