For many people, taking out a loan is the only way to finance a major purchase or cover an unexpected expense. But before you sign on the dotted line, it’s important to understand the basics of how loans work.

Here are a few things to keep in mind before you apply for a loan.

Find out if you qualify.

The first step in getting a loan is to find out if you qualify. Lenders will look at your credit history (check out Extremely Bad Credit Loans), employment history, and other factors to determine whether or not you’re a good candidate for a loan.

Compare rates and terms.

Once you know you qualify for a loan, it’s time to start shopping around. Lenders will offer different rates and terms, so it’s important to compare them to find the best deal.

That means that you should definitely not settle for the first loan offer you receive. Take your time to shop around and compare rates from multiple lenders before making a decision.

Be prepared to pay fees.

In addition to interest, you’ll also have to pay fees when you take out a loan. These can include origination fees, closing costs, and application fees. Make sure you factor these into your overall costs when you’re comparing loans.

You should also be aware that some lenders may charge prepayment penalties if you pay off your loan early. This is something to keep in mind if you think you might be able to pay off your loan ahead of schedule.

Don’t take more money than you need.

When you’re taking out a loan, it can be tempting to borrow more money than you actually need. But resist the urge to do this. Not only will you have to pay interest on the extra money you borrow, but you may also end up with a loan that’s too big for you to comfortably repay.

It’s always better to err on the side of borrowing less rather than more. That way, you’ll be less likely to find yourself in over your head.

Try to improve your credit.

If you’re not happy with the interest rate you’re being offered on a loan, try to improve your credit before you apply. This can take some time, but it will be worth it in the long run.

There are a number of ways to improve your credit, including paying your bills on time, maintaining a good credit history, and using a credit monitoring service.

Taking out a loan can be a big decision. But if you’re prepared and you take the time to shop around, you can find a loan that’s right for you.