The loan approval process takes time, so prepare as early as possible to help ensure the funds are approved and available when you need them. If you’re thinking about applying for a loan, ask yourself these five questions:
1. What’s the Purpose of My Loan?
Before you apply for a loan, whether it’s a home mortgage, auto loan, or personal loan, the first step is to clarify the purpose and amount of the loan needed, time constraints around getting your loan approved and having the monies available, as well as the flexibility you need for repayment. While home equity and auto loans have specific purposes, a personal loan may require more information about any collateral you’ll need to use before your banker can guide you through the process.
2. Can I pay the loan back?
Consider your monthly budget and bills when trying to decide if you need a loan. The monthly loan payment needs to fit in your budget and still allow room for adding funds to your emergency savings and achieving your other short- and long-term goals. You should calculate how much you can afford in an auto loan or a home loan before you apply. Not paying a loan back timely can negatively impact your credit and may affect your ability to borrow money in the future. Use this calculator to determine how to pay off your debt.
3. What Information and Documents Do I Need to Gather for My Banker Before I Apply for a Loan?
In order to secure a loan, talk with your banker about the requirements you need to meet as well as documentation you’ll need to gather, such as proof of income and assets you plan to use as collateral.
4. Will My Credit Affect My Ability to Borrow?
A bank may determine your eligibility for a loan through your credit score and credit history. A lower credit score can result in a higher interest rate or a declined loan application. The sooner you’re aware of your score, the more time you’ll have to improve it if needed.
“It’s important to know your credit score and any issues with your credit,” says Chris Evans, AVP Direct Lending Manager, Regions Bank. “Check your credit score annually, if not more often, and check it at least 30 to 60 days before a loan application so any errors can be fixed.”
You should also know if there are any liens or judgments — noncriminal civil court cases resulting in required payment — on your credit that may have a negative impact, Evans says. Generally, before applying for a loan, it’s a good idea to avoid opening new credit three to at least six months before you apply, pay bills on time, pay off outstanding debts, and call the credit bureaus to fix any errors on your credit report.
5. What Should I Research Before Taking on a Loan?
Get multiple quotes for your loan so you can find a payment structure and interest rate that works within your budget.
A loan can allow you to make major purchases while securing a payment plan that works within your budget. By preparing ahead of time, you can take steps to improve your credit score, choose the right loan, and lock in the best rate available.
Read on for quick tips to help you preparing for applying for a loan.
