Do you need to borrow money from a bank or credit union?
Whether it's a mortgage loan, a car loan, or a personal loan, you're definitely not the only one interested in filling out an application. The majority of Americans have taken out one (or more) of these loans, and much of the country is interested in borrowing more in the future.
If this is your first time taking out a loan, you might be a bit anxious about the loan application process. Borrowing money can definitely be intimidating. If you know what to expect, though, you'll be less worried about moving forward.
Read on to learn everything you need to know about the loan application process.
Before You Apply for a Loan
There's some preparation required before you apply for a loan. The following are some steps you'll need to take before you reach out to a bank or credit union and fill out a loan application:
Make Sure You Don’t Have any Existing Major Debt
You can’t get a major loan if there’s an existing loan that you still keep paying. Unless you have a huge monthly income, keeping up with two significant loans that require monthly payments would be tough. You can wait until you have already finished one loan before getting another, or at least be close to completion. Keep records of all your finances so you would know where your money is going or coming from. You can now create and manage invoice template on the internet to execute this task efficiently.
Choose the Right Type of Loan
First, make sure you're applying for the right type of loan. Are you looking to buy a car or a house? Do you need a student loan?
Consider your needs and choose a loan that best suits them.
Remember, too, that you might not be able to use certain types of loans for specific purposes. For example, you might be able to use a personal loan to pay for education expenses.
Know What You Can Afford
Do some simple math and look at your budget to figure out how much you can afford to spend every month paying back your loan.
A lot of people skip this step and then end up struggling to make their payments on time later on. Have a repayment plan in place and know what you can afford before you start filling out applications.
Check Your Credit Score
It helps to know your credit score before you start applying for loans, too. This will help you narrow down your search and apply for the loans for which you're most likely to get approval.
Compare loan options from different lenders, too. This will help you find the best terms and interest rates.
Prepare Essential Documents
You'll need to provide a lot of different documents along with your loan application. Take the time to gather these documents now so you don't have to search for them later.
Some documents you'll need might include the following:
- A driver's license or another form of ID
- Proof of income
- Bank statements
- Proof of employment
- Tax returns
Depending on the type of loan for which you're applying, you might need additional documents such as a business plan or a copy of your business license.
The Loan Application Process
Once you've taken these preparation steps, it's time to go ahead and fill out your loan application. This process is pretty straightforward most of the time and involves the following actions:
During this stage, your lender is letting you know how much money you can borrow from them. You'll provide them with some basic information about yourself, and they'll do some research to figure out how much money is safe for them to lend you and at what interest rate.
If you're happy with the amount for which you've been pre-approved, you'll go ahead and fill out some additional paperwork to move forward. Then, the loan processing will begin.
At this point, the loan officer will make sure everything checks out with your application. They might also reach out to you at some point for clarification.
If everything goes well with the processing portion, you'll move on to the underwriting stage. During this stage, you'll receive a copy of and sign the loan agreement (after reading it through carefully, of course) and receive the funds you need.
Bonus Tips for Getting Approved
If you're worried about your loan application getting approved, there are some extra steps you can take that might increase your chances.
Here are some bonus tips that will make you a bit more appealing to the person approving your application:
Improve Your Credit Score
The higher your credit score is, the more likely you are to get approved for the loan amount you need. You'll also get lower interest rates and better terms.
Take steps early on to improve your credit score and correct any errors that may be present on your credit report.
Pay Down Your Debts
It helps to pay down any existing debts you have, too. This includes credit card debt. The more money you have in the bank and the fewer debts you're paying off each month, the more appealing you'll be to the loan officer.
Don't Ask for More Than You Need
If you ask for too much money, this could be a red flag to lenders and you may have a harder time getting approved. Do the math and ask only for what you need.
Have a Backup Plan
No matter how hard you work, things don't always go the way you'd like. Because of this, it also helps to have a backup plan in place. That way, you won't be totally out of luck in the event that your loan application doesn't get approved
Consider other ways to get the money you need. There are plenty of other ways to secure funding.
According to this helpful article, a no credit check loan can be a good alternative to traditional loans, as can a line of credit or credit card (assuming you don't already have a lot of credit card debt).
Get More Financial Advice Today
It's normal to be a bit intimidated by the loan application process, especially if this is your first time ever applying for a loan.
If you keep this information in mind, though, you'll have a much easier time filling out your loan application and getting it approved.
Do you need more financial advice? Are you looking for more guidance on applying for and getting approved for loans? If so, we've got lots of other helpful articles on our site.
Check out some of the finance articles on our site today to learn more.