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When Are You Ready for a Loan?

Deciding when to take out your first loan is an important decision. How can you tell you're ready for a loan?

Shall I go for it?

"I won't buy a car until I can pay for it with cash," says Jess. She's 18 so she can legally sign for a loan now. But Jess doesn't want to be stuck with monthly payments while she's in school.

That means she won't be buying a brand new car. In fact, she might not buy a car at all, but take the bus instead. She's still thinking about it.

Is it when:

The answer isn't as simple as you think.

"Congratulations...!"

...You qualify for a $5,000 loan immediately. Just fill in the enclosed card by…

Wait! Proceed with caution!

True, you need to qualify, but that's just a basic step. It must not take much to qualify if they can't even spell your name right on the envelope!

When you dispose of those offers, protect your identity.

Lots of offers congratulating you on qualifying will come into your mailbox—online and onland. They're not all in your best interest.

Start with your credit union. You already have your accounts there, have a history based on those accounts, and they have the authority to approve or deny your loan application.

Parents are good at this.
It's a big deal to be a co-signer.

Happy Birthday!

Age is important. You must be 18 or older to be legally liable for signing a contract. "Legally liable" means that legal action can be taken against you if you fail to follow through on your promises.

What about if you are under 18?

Ask your credit union if they will allow you to borrow money with a co-signer.

Not many financial institutions will allow someone under age 18 to take out a loan. Ask anyway—they may have some other, better ideas to help you get the money you need!

How much do you make?

Oh no!
Don't let yourself get into this position!

Many people have problems repaying first loans. Not having enough income to handle the payments is the first reason. Failing to account for rising expenses is another.

Look critically at your expenses over the time you plan to borrow the money.

For example, are you moving from your parents' home into an apartment? You'll discover you're paying more than just the rent! Unless you plan to give up food, toilet paper or television.

Are you graduating from college or getting married? How will your loan payments affect these decisions?

Use this readiness checklist to help you decide if you're ready to borrow money.

Jess won't take out any loans because she doesn't need to, and doesn't want to.

She doesn't want to build a bad credit history before she has her college degree.

How do I get approval?

Your credit union will approve your loan based on what is commonly known as the four "Cs" of credit. They are:

College graduate Josh Jones talks about credit worthiness.
Your credit union will approve your loan based on your credit worthiness
Click me.


Credit unions, and all legal lenders, must follow strict lending laws that regulate the process. One thing they have to do is set conditions for determining whether or not a loan is approved. They can't base their decisions on other factors. New laws protect you

Think about it—would you want your loan request to be determined by how you dress, your jewelry, if you're female or male, which church you go to, or where you live?

Fortunately, the government makes sure that this information isn't a factor.

What if you've decided you're ready to take out a loan?

Once you've decided

There are loans out there for just about anything you need.

The most popular loans for high-school students are student loans for college, and smaller loans for cars.

Student loans

You can take out a student loan in either your name or your parent's name. The person in whose name the loan is taken out is usually responsible for paying it back.

What about signing all those forms?

Your credit union can help you and your family apply for help with college expenses, often called financial aid.

The loan part of financial aid usually defers, or holds off, on charging you interest until you graduate. That can be a big help if finances are tight.

Auto loans

Car loans require different paperwork than student loans. Before you even look for a car, talk with a loan officer at your credit union.

Credit unions are in business to help you make the most of your money—and consumers agree they like credit unions more than banks! A credit union doesn't have to pay stockholders and therefore can usually offer better loan interest rates.

Your good credit history pays off!
The more you save now, the less you borrow later!

The bottom line

For your first loan, learn as much as you can about what kinds of loans are available to you. Your credit union's web site can be a great resource for loan information.

Then, call your credit union and make an appointment to talk with a loan officer. For a first loan, face-to-face is the best way to go about getting the money you want or need.

The bottom line for taking out a loan is responsibility. Some 16-year-olds are more responsible with their financial accounts than people twice their age.

When you borrow money, do it with the intent to repay the loan in a prompt and punctual manner. Borrowing money is a privilege, not a right.

Once you earn that right, protect it by protecting your credit rating. Your credit history and a good credit report give you the ability to borrow in the future.

True or False: Benjamin Franklin was an avid long-distance swimmer. Click Ben's head for the answer.
TRUE: Though it was a time when not many people swam, Franklin was a seasoned swimmer as a young man. He even invented the first swim fin.
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Planning for college? Find out more about the CEFCU Private Student Loan at cefcu.com/student.
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