Taking out a loan for the first time is not a decision to be taken lightly. In the ideal world, we wouldn’t need to take out a loan, and we would have the financial resources to pay for expenses. However, sometimes life can throw curveballs, and you may find yourself in need of a loan, whether that’s to start a new business or manage an unforeseen expense. It is crucial to handle these situations in a way that does not hinder out long term financial objectives.
In this blog post, we will delve into the reasons why individuals might need to take out a loan and highlight important considerations that every borrower should be mindful of.
Why do people take out a first-time loan?
Top 3 reasons people choose to obtain a first-time loan according to a 2022 survey conducted by YouGov Plc, include:
- Family finances (55%): Parents with young children aged 4 and below often opt for their first-ever loan to support their family’s financial needs.
- Car purchase (31%): Nearly a third of first-time loans are utilised to buy a car. This enables individuals to purchase the vehicle upfront and repay the amount in installments.
- Debt consolidation (27%): Depending on personal circumstances, a debt consolidation loan can be a viable method to simplify debt repayments and save money on interest and other charges.
Important considerations for first-time loan recipients.
Tesco Bank emphasizes crucial factors that individuals must consider before acquiring a first-time loan:
Repayment
Repayment involves returning the borrowed funds to the lender over a specified period, adhering to the agreed-upon terms and conditions outlined in the loan agreement. It necessitates making timely payments, typically comprising both the principal amount borrowed and the cost of borrowing known as interest. Determining whether you can comfortably manage the monthly repayments is a critical consideration before pursuing a loan.
Loan term
The loan term indicates the duration within which borrowers must repay the loan amount to the lender. This term is established upon loan approval. Given that it determines the repayment timeline, it is essential to evaluate whether your financial situation may undergo changes. Tesco Bank’s research shows that 48% of borrowers considered loan duration a key factor in their decision to obtain their first loan.
Fees and charges
Apart from the interest rate, there may be additional costs associated with a loan, including administrative, processing, and service-related charges. These fees are separate from the interest rate and are intended to cover various expenses incurred by the lender during the loan application process. Surprisingly, only 18% of surveyed individuals considered fees and charges when applying for their first loan.
Interest rates
Loan interest rates represent the percentage of the loan amount that the lender charges as the cost of borrowing. The interest rate offered directly affects the overall amount you will pay for borrowing. Higher interest rates imply greater interest expenses over the loan term, while lower rates can reduce the overall cost. Interesting findings from Tesco Bank’s survey reveal that 18% of respondents cited “high-interest rates” as a potential deterrent for obtaining future personal loans.
Tips for responsible borrowing:
Responsible borrowing plays a crucial role in maintaining financial well-being and ensuring loans are used wisely and effectively. Before acquiring a loan, it is essential to thoroughly assess your financial needs and borrow only the required amount. Take the time to carefully read and comprehend the loan agreement, including the interest rates, repayment terms, fees, and potential penalties. If anything remains unclear, do not hesitate to seek clarification from the lender. Creating a budget can also provide valuable insights into your income, expenses, and your ability to comfortably make loan payments without compromising other essential financial obligations.
In need of assistance 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..
Loans eligibility:
- 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.