The execution of many big plans requires lots and lots of money. Then, comes the idea of applying for a loan. You may need a loan for your mortgage or a new business you have in mind.
If you are looking to apply for credit without being turned down or cheated, then you need information surrounding the process to be at your fingertips. Your lenders will need some information and the others simply ensure you are aware of what you’re trying to get into.
The information you need ranges from simple information like your income and expenditure to more detailed information such as your credit score.
Let’s get to it!
Five Things to Know Before Trying to Get a Loan
A Proof of Your Income Will be required
Your income (precisely your take-home income), determines how much money you can let off every month for the payment of a loan. Hence, in applying for a loan, information concerning your income will be required.
Employees may be asked to fill W-2 forms or simply get a letter from their employer, with details of their earnings. If you’re a business owner or self-employed, information on your tax will be requested. In some cases, you will also be asked to produce receipts and invoices. To give you a higher chance of getting that loan: if you have other sources of income apart from your major one, including them and proof of how much you make from them will work.
This extra source of income could be from freelance, a second job, your spouse’s income or child support.
Your Credit score and credit history matters
When you are trying to get a loan, one advantage you certainly want to have is getting a loan with a small interest rate. It’s a bit surprising, but an increase in your interest rate by a mere 1% can amount to a difference in several thousand or millions of dollars while you’re paying back.
This is where your credit score comes in. Your credit score and your credit history simply reveal to your potential lenders how credit-worthy you are. It also reveals how quickly you pay your debts. If you have bad credit, you may end up securing a loan with terms that are not so favorable, especially in terms of your interest rate and payback time.
On the other hand, good credit makes you more trustworthy. Hence, you’ll be more likely to receive loans on favorable terms. If your credit score and history is bad, it is best you hold off on applying for credit. Then, work on getting your credit in good shape.
The first step here is knowing your credit score, so work on that.
You will be asked for proof of your Monthly payment obligations
Now, this runs deeper than your expenditure. Your monthly payment obligation talks of those payments you cannot avoid making every month. This may include your mortgage or your rent and that is just fine. It would also include your monthly payment for some scotia vehicle loans you might have taken in the past. The important point here is to ensure that your payment obligations are not almost equal to your income.
In such cases, it becomes impossible to take on any new credit, as the payback would be yet another monthly obligation; one you cannot afford.
Prospective Lenders Might Request Employer’s contact information
In the process of getting a loan, you must have dispensed a lot of information about your past and current employment (if existent). Prospective lenders would need to verify this information. Hence, they may request for the contact of your current or past employer.
Now that you know this, ensure that all the figures and information you dispense during the process are right.
Your Assets Will be considered
While your monthly obligations can be classified as your liabilities, your assets include anything you own that is worth something or will be worth something in the future. This includes properties you own, your accounts in investment; stocks, bonds and the likes of it. A subtraction of your liabilities from your assets is what gives your net worth.
If your net worth is great, then you’re also sure of an upper hand.
Getting a loan can be a rigorous process, so keep these in mind and get prepared. Preparation only makes the process better.