Getting a loan for the first time can be a bit daunting, as there are many factors to take into account, such as eligibility, interest rates, credit duration, documents required for loan processing and many other things.

There are different types of loans available to suit various needs of borrowers. These include personal loans, home loans, business loans, education loans, etc. Understanding the different types of loans will help you choose the most suitable one based on your needs.

For example, a personal loan is an unsecured loan offered to borrowers to meet their immediate or planned financial needs. It can be used for a variety of reasons, such as medical emergencies, travel expenses, home renovation or debt consolidation.

Before taking a loan for the first time, it is important to understand various stages and processes involved in a loan disbursement by any financial institution. In this write-up, Priyank Shah, Co-Founder & CEO of The Financialist, will explain the process step by step and provide you with useful tips to get your first loan with confidence.

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Here are 10 essential tips to help you navigate the loan process:

  1. Basic hygiene check:

Before signing any loan agreement, it is important to read the loan documents thoroughly to understand terms, interest rates, repayment schedules and any other fees, says Shah.

  1. Create and follow a budget:

Take the time to identify key expenses like household supplies, commuting, and utilities, Shah advises. Create a clear budget so you can avoid borrowing more than you need, he suggests. Sticking to this budget will ensure that both loans and repayments remain manageable, he adds.

  1. Stay disciplined with repayments:

“Set up automatic payments or reminders to ensure timely repayments. Choose loans with flexible terms to pay off debt faster, avoiding additional fees and penalties,” Shah suggests.

  1. Choosing the right lender:

One should carefully select the right lender to secure the best loan terms and do research and compare lenders based on interest rates, processing fees, and customer reviews, he says. “Look for competitive rates, flexible repayment options, and a strong customer service. Consider the lender’s reputation, loan disbursal time, and responsiveness. Don’t hesitate to ask questions and seek clarification before committing.”

  1. Assess your credit score and repay existing loans/ CC bills:

“Before applying for a loan, take a close look at your credit report,” Shah recommends. “Lenders will rely on your credit history to determine your eligibility and interest rate. If you spot any errors, dispute them immediately. Improving your credit score by paying off outstanding credit card balances can also help you secure better loan terms.”

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  1. Calculate your EMIs:

Determine a manageable EMI based on the loan amount, interest rate, and tenure using online calculators.

  1. Avoid financial strain:

Make sure your EMI aligns with your budget, allowing you to manage essential expenses and savings without financial strain or overcommitting to high repayments, Shah recommends.

  1. Interest rates and charges:

Seek lenders with low interest rates, as even a small difference can significantly affect your EMIs, he says. “Processing fees, late payment charges, prepayment penalties, and other fees can greatly impact the total cost of a loan. It’s important to be mindful of these charges and also, carefully review the loan agreement and ask the lender to clarify any terms or charges you don’t understand.”

  1. Choose the right loan tenure:

The loan tenure affects both your monthly EMI and the total interest paid, according to Shah.

  1. Balance EMI and interest costs:

Shorter tenures mean higher EMIs but lower total interest, while longer tenures result in smaller EMIs but higher overall interest costs, suggests Shah.