As a first-time jobber, you may not have the financial bandwidth yet for a number of things, such as personal emergencies, urgent home improvements, further studies or buying a vehicle. At such times, loans come in handy. But before deciding to get a loan, familiarize yourself with the types of loans and what they entail.
1. Personal Loans
An unsecured debt that does not require any collateral, a personal loan usually has a higher interest rate than secured loans. You can use this loan for various purposes, such as funding initial job-related expenses, paying off other debts, home improvements, medical emergencies, or a vacation.
Personal loans are flexible, require no collateral, are generally approved with little to no delay and usually have fixed interest rates that do not change with market conditions. On the flip side, there are many factors to be considered before getting a personal loan, such as higher interest rates and processing fees, and easy access to funds can lead one into a debt trap.
2. Education Loans
Designed to provide financial assistance to students pursuing higher education, first-job starters who want to continue their studies or pursue professional courses can consider education loans to cover tuition fees, books, accommodation, and other related expenses.
Educational loans can give one access to ordinarily out-of-reach higher education. They also come with a lower interest burden, making them affordable. Not to mention, they also have tax benefits. They are a relatively easier way to build a good credit score, provided no defaults exist. On the other hand, such loans can saddle students with long-term debt, which can be burdensome if the income doesn't come in as expected. Here are some tips to use your student loan effectively on your first job.
3. Two-Wheeler Loans
These loans are issued explicitly for purchasing motorcycles or scooters. This type of debt can be advantageous for first-job starters looking to immediately buy a bike or scooter as a means of transportation.
Two-wheeler loans do not require additional collateral as the vehicle itself is the security. Thus, the processing time is speedy. However, interest rates for these loans, which lenders consider risky, tend to be higher. They also adversely affect the landing cost of the vehicle.
Always weigh the pros and cons before taking on any debt, and always make timely repayments to maintain a healthy financial profile and avoid severe consequences.
