No matter what type of loan you are applying for, there are a few things you must know beforehand, and several steps you can take. Here is a short guide to the different types of loans, what to know before applying for a loan, and a few tips to help you get approved.
For home loans, mortgages are typically categorized as conventional or government. Conventional are standard and are divided into fixed or variable interest rates. On the other hand, government loans are specific to the homeowner, such as an FHA loan for a first-time homeowner, or a VA loan for a veteran.
These can vary widely by location, even in the U.S. alone, and will have different rates and qualifications for graduate or undergraduate programs.
These can be used for anything, but are commonly utilized for things like car repairs, home renovations, and covering general household expenses in between paychecks. Unsecured quick cash loans online are an example of a personal loan available to most consumers with a checking account and proof of income.
Auto loans are typically straightforward through a car dealer or a credit union, where the automobile itself functions as the collateral. Things might get a bit more complicated if the borrower has recently declared bankruptcy, but auto loans are still available for those in this situation.
Business loans have the most diverse categories and are divided by how long the loan is for, what it is for specifically (equipment, general purposes, etc.), even the size of the business.
Each of these types of loans listed requires a great deal of preparation before heading to the bank or other financial institution.
What to Know Beforehand
Before applying for a loan, there is some information your bank will need:
Most often, the loan officer will be able to find this information for you. They may even be able to get a more accurate number than you can; however, it is good to get an idea of your credit score beforehand in order to work on improving it. After all, each time your credit score is pulled, by a loan officer or any other credit application, there is a slightly negative effect on the score itself.
Income, Assets, Debt, and Obligations
This list can be broad for some, and quite narrow for others. It is crucial to have official documents such as W-2s or pay stubs for income, along with a monetary value of any assets. Debt and Obligations include anything from student loans and credit card payments to monthly bills such as utilities. All of these must be provided to a loan officer.
Your loan officer will need your place of business or employment and past work history. References from an employer or other sources may be asked for as well.
With all of this information ready to go before meeting with your loan officer, there are a few other tips that can help you qualify for the best loan for your situation.
How to be Approved for a Loan
With the above items under your belt, you can gather them and review them on your own, and see what might need some help. For example, everyone knows a higher credit score means a better loan with lower interest rates.
The higher the credit score, the better. Take steps such as reducing debt and paying your bills on time, each month, to raise your score. Check your report and learn what factors may be bringing it down. This is not the only factor to be approved for a loan.
Debt to Income Ratio
Loan providers may not want to lend to someone who already has a much higher debt than income, even though this is often one of the main reasons to apply for a loan. Find any way that you can cut back, and show the bank or financial institution that the ratio is a healthy one.
Find the Right Loan and Lender
You are most likely to have a successful loan offer with a credible and reputable financial institution. It is equally important to be prepared for your loan application as it is to know exactly what kind of loan your current needs require.