Getting a bank loan approved is not the easiest of things, and in light of shaky economic times, lenders are especially keen to process every aspect of a loan application to weed out what they deem as precarious applicants. For the average person, understanding the loan application process can help put you ahead of the queue in terms of preparedness and presenting what would be considered an ideal package for review.
The following are important points that loan applicants need to follow to minimize the hurdles that often get in the way of positive loan assessment.
1. Study each loan package carefully
Before submitting any loan application, begin by analyzing existing packages from a variety of lenders. Your bank’s loan officer might throw out random facts at you during your initial meeting, and it would help if you weren’t completely in the dark as to what the standards are for obtaining your loan request.
Personal loans can include car loans, mortgage loans, home equity lines of credit, installment loans, payday loans, etc., and the most crucial factor when underlining the interest rate for these types of loans is the applicant’s credit score.
2. Prepare a checklist
Based on the information presented on your bank’s website, you would be required to gather some amount of documentation needed for the loan application. To create this checklist you may have to contact your employer, creditors, and other financial sources. Remember an incomplete application is almost always cause for loan denial.
3. Observe the debt-to-income ratio
Only apply for a reasonable amount based on existing needs and avoid over-reporting your income. It’s possible that a loan officer overlooks one or two credit indiscretions or a borderline credit score because the applicant has a relatively high income, but this is no justification for inflating your income. Provide legitimate pre-tax earnings and include all sources of income – and if required, include your spouse’s income as well.
4. Check your limitations
Whenever you plan to pursue a loan, take time to check your credit history and current score, and contact the bank to learn about the range of credit scores required for specific loan amounts. Take out a copy of your history weeks in advance, and give yourself time to review and correct any wrong entries on your history report.
Lenders will refer to your past usage of credit when processing your application and if there are any mistakes on the report, it could lower your score, thus hurting your chances of getting a loan. Review all your financial limitations before applying for the loan.
5. Variable or fixed rate?
With a variable-rate loan you will start off with a relatively low premium, but the rate can still be adjusted later on as interest rates rise; and this presents a unique risk. To avoid this potential entanglement you could opt for a fixed-rate, in which the amount of your monthly premiums remains constant throughout the term of the loan regardless of variations in interest rates. Find out from your lender what your options might be in case you run into trouble with your repayment plan.