When you need to buy a car, pay off some bills, repair or remodel your home, or even buy a home, there are loan products to help out. While applying for each type (car loan, personal loan, home equity loan, or mortgage) requires a slightly different process, there are some common threads. Here are some tips to help you get the loan you need.
Basis for Loan Approvals
Loan approval, limit and interest rates are typically based upon a combination of:
- Income (banks evaluate the amount and consistency/reliability of income)
- Credit score (calculated based upon length of credit history and amount used, on-time payment and related factors)
- Other assets or collateral (value of car or home, or other loan collateral)
- Debt-to-income ratio (calculated by comparing your major monthly payments to your income)
- Your past relationship with the financial institution (if any)
Check Your Credit Report and Score: Request a free credit report from Experian, Equifax and TransUnion at AnnualCreditReport.com. Credit card companies and banks sometimes offer a free credit check to their customers. Review the information and have any errors corrected before applying for your loan. Although every lender uses a slightly different formula to determine a credit score, most will be in the same ballpark.
Research Loan Requirements: Get an idea if you’ll qualify before applying for loan at a particular bank or credit union, so you can limit the number of financial institutions that have your sensitive personal information and check your credit. Credit inquiries can lower credit scores slightly, for a short period of time. Ask lenders you’re considering about credit score requirements for auto, personal, home improvement or home loans, (or check online).
Shop for the Best Loan Terms: Consider interest rates offered and whether the bank offers a repayment period that is comfortable for you. You may have a better experience if you choose a local bank--one that you can actually visit to apply for your loan and for any questions along the way. Establishing a face-to-face relationship can be valuable for your future financial needs--and you'll be contributing to your local community's economic growth.
Loan Application Process
Gather loan application details and documents. Details you’ll need for your loan application (and lender verification) include:
- Your monthly rent or housing payment
- Your employer’s contact info and length of employment OR
- Income reflected on recent tax returns, if you’re self-employed
- Any other verifiable income (if you want it to count toward the approval of your loan)
- The lender may require current paycheck stubs (or equivalent), copies of tax returns or bank statements. Your loan application typically includes permission for the lender to independently verify any information you provide.
Choose a Local Bank for Personal Consideration
A good way to start looking for a loan is by visiting a community bank or credit union. Talk with a loan officer to discuss your funding options.
Smaller banks may offer:
- Lower loan fees (or none at all)
- Better interest rates
- Personalized lending with less "salesmanship"
- Simpler loan applications
- Quicker response time
These steps should set you on the path to loan approval. For more tips on banking and financial health, visit our Bundlefi blog regularly.
Today’s consumers have the information and the tools they need to take control of their finances—and Bundlefi is ready to empower consumers to make a change. Contact us today, or start exploring local banking institutions to see why it pays to keep your money close to home!