While applying for a personal loan for the first time can help you with certain expenses, including education and your first car purchase, the process can be daunting. While many banks are more than willing to loan you money, it’s imperative to have a clear understanding of the responsibility associated with taking out a personal loan before signing the final documents. Below you will find three important questions to ask when applying for your first personal loan. 

What to Ask When Applying for Your First Personal Loan

1. What are the Interest Rate Terms?

When you apply for a loan, you agree to borrow money from your banker of choice at a specified interest rate. Before you sign any documents, compare rates between at least three FDIC insured banks to find the lowest interest rate. Additionally, be sure to understand whether that interest rate is fixed, meaning it remains the same for the life of the loan, or variable, which means it fluctuates depending on current market rates. 

2. What is the Monthly Payment & Are There Prepayment Penalties?

It’s important to understand what your payment each month will be with interest. If you’re taking out a fixed interest personal loan, that number will remain the same. If it’s a variable interest rate, it may fluctuate. Most banks like to ensure that your debt repayments are less than or equal to 36% of your take-home pay. Be sure to run the calculations before signing the official loan documents. If you can’t make the payments, your credit score may be affected.

3. Will My Credit Score Impact the Interest Rate?

Most banks will pull your credit score before offering you any loan terms. This is to ensure that you are a trustworthy borrower who repays loans on time. Typically, the higher your credit score, the lower the interest rate. Banks like lending to consumers with good credit because they know that they will make their money back. 

If you’re considering applying for a personal loan, it’s best to have a clear understanding of the process itself. Additionally, it helps to have a trustworthy banking partner on your side. The qualified team at Master Finance has been providing the San Marcos, TX, community with affordable loan products. Call them at (512) 392-6102 or visit their website to find out more about how they can assist you with your loan needs.