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Applying for Loans

To apply for a loan, you’ll be taking an honest look at your budget along with the person or institution lending you the money. It’s in everyone’s best interest to make sure you can afford payments for the things you buy based upon your budget.  The more history of responsible payments and spending you have, the better, which we’ll explain below.

The 3 C’s of Lending

To see what kind of borrower you have been in the past, a lender will pull your credit report. The more reliable you are in paying back borrowed money, the more likely your loan application will get approved. If you have nothing negative on your credit report, a lender will look at you like a clean slate.

Collateral is something of value, like a car or home, that is tied to a loan. A loan with collateral is less risky (and easier to approve) because the collateral can be repossessed if they loan is not paid.

A lender will ask about your income and current bills to make sure you are capable of paying the new loan you are applying for. The lender needs to know that you can pay the loan back.

Used Car Loan Example

Let’s say you want to buy a used car. The lender will use your credit score to determine your interest rate. Typically, the higher your credit score the lower your interest rate will be. This means you will pay much less for the car loan in the long-term.

How to Shop for a Loan

When applying for a loan, you’ll want to know the value of the item you’re buying, as well as the listed price, and you can expect to share a few things with the lender. Having a down payment, or money you put down up front, can help lower the amount you’ll need to borrow to afford the item over time.

Lenders will likely need to see your current income and will want to know what you do for a living. They’ll also ask about other bills, and check your credit report for other debt you owe, which will likely mean checking your social security number with one of the credit agencies to see your credit score and payment history.

TIP: When shopping for loans lenders will check your credit which is a hard inquiry on your credit which can negatively affect your credit in the short-term. To minimize the impact, for auto loans and mortgages, do all your loan shopping within a 14 to 45 day period. Most credit bureaus will view multiple inquiries within this time period as just one inquiry, lessening the impact on your credit.