Getting approved for a loan, no matter the purpose, is usually a pretty straightforward process. While modern banks may be looking for a lot more in applicants than they used to, there are generally some things that applicants can do to make their chances of securing their funding less stressful and more streamlined. The first things to determine are what type of loan you need, and where you are going to borrow from.
Types of loans
There are a variety of loan and funding options available to many borrowers, including mortgages, auto loans, credit cards, personal loans, and payday loans. Many of these options require some form of collateral. For a mortgage, it is usually the house. For a car title loan or other automotive loan, the car is collateral. These secured types of loans may be more available to applicants with credit that is less than stellar, because even if you end up defaulting or running into other trouble trying to pay off your loan, the bank or financier will still be guaranteed some kind of payoff from your collateral. This may not end up so good for you, if that happens, which is why it is always best to make a decision on the type of loan you will pursue based on what you know you can afford, in the worst case scenario.
Where to borrow
It is always smart to shop around when you are seeking a loan, though there may be limitations or parameters, based on the type of loan you determine you need. Start your search by focusing on banks and credit unions in your community, that people you know well speak well of, and who are known for making deals on affordable loans. Check with several of the institutions in your area, and compare costs and interest rates once you have visited them all. You should already have an idea of the terms you can afford, and your strategy for paying off your loan, so that you can make the best decision for yourself, your family, and your wallet.
You should always keep an eye on your credit score and credit report, and you should have started checking in on it long before you need a loan. If you need to get on that, may this blogger highly recommend CreditKarma? It is free, and they even offer tax-prep services and many other services for people with less-than-perfect credit who need help rebuilding their credit to a reasonable level.
Credit scores range from 300 to 850. There are many factors which tally into your credit score, and some of these include:
- Number of open accounts
- Number of closed/defaulted/collections accounts
- Total amount of debt
- Types of debt (car loans, mortgage, student loans, credit cards, shopping club accounts, etc.)
Before even applying for a loan, you should do everything in your power to push your credit score to the best level possible. When lenders look at applications, they generally read a score of 640 as fair, 700 as good, and 760 and above as excellent. People with a score of 760 and higher will generally be able to walk into a bank or other financial institution, sign on the dotted line, and walk away with cash. People with a score of less than 640 will be disappointed very often, until they can bring their score up. Do not let that discourage you, if you fall into that group of people with less-than-great credit. There are methods and steps you can take to raise your score again; once more, let me recommend CreditKarma…..
The other major factor a bank or lender will inspect when reviewing an application for a loan is your income. If it is seen as a stable source of income, and you have a stable history of earning income, then your chances of being approved shoot higher. Interest rates may be lowered, and a few bumps on your credit report may be overlooked, if your income is currently stable and you have a history of stable income.
Another aspect of the loan application process is the calculation of the debt to income ratio. What this basically means is the bank or lender will look at your total monthly debt and your gross monthly income, and determine if, on paper, you can afford the terms of the loan you are seeking. This is by no means the only factor for approval or disapproval on a loan request, but it is quite a hefty influencer in the process. It is always best to have a ballpark figure in your own mind, so the bank cannot really surprise you.
Ask for as little money as possible. Total debt owed makes up 30% of your total credit score, so always taking as little as necessary to make it happen is going to benefit you in the long run.
Outline the reason you need the loan. Especially if you are seeking an unsecured personal loan, with no collateral, the bank or lender will want to know how you plan to use the money. If your cause is good and necessary, explain how and why. Be honest.
Slow down on the applications if you keep getting denied. It can actually affect your credit score if you keep applying for loans, and getting denied, in too short a time frame. A good rule of thumb is to apply for loans not more than once per quarter, and not even that many times if you can avoid it. Also, avoiding peak application seasons is key. Everybody wants a loan at Christmastime, to buy presents for their family and friends, but this means your chances of approval are slimmed down, due to sheer volume of applicants. Avoid that hassle, and plan ahead instead.
We here at Wise Loan hope this helped! Knowledge is power, so stay tuned for more posts with great information in the next few weeks!