13 Borrowing Money At some point, you will likely make a purchase that requires you to take out a loan—and it will be important to know how this process works. Before you take out a loan, make sure that you're getting the best interest rate possible, and be certain that you will be able to make all of the pay- ments on time. The application process When someone needs a loan, they most often go to their bank (or credit union) and complete a loan application. The bank will check that person's credit report and/or credit score to determine if he/she is a good risk. If the bank approves the loan application, they will discuss the terms of the loan—the interest rate, the length of the loan, etc. If the loan is rejected, the bank should provide a written explanation of why. If the rejection was the result of a credit search, the person request- ing the loan might want to check his/her credit report for errors. When anyone is turned down for a loan or credit, it should be viewed as a wake- up call—a message telling them to take control of their finances. Terms to know If and when you apply for a loan, it would be good for you to be familiar with the following terms: Co-signer – a person who also signs the loan documents, and agrees to be responsible for the loan if payments aren't made Default – failure to repay a loan Down payment – the initial amount you must pay when something is purchased on credit Installment loan – a loan with a set number of payments Interest – the amount you're charged for borrowing money Term – the length of the loan Title – a document that shows ownership