While personal finance education is relatively easy to find and most lenders do a great job when it comes to explaining how their products work, there are no guides that help individuals prepare for their first loan. The application process itself is fairly straightforward, regardless of lender.
However, what a borrower does before submitting the application can play an important role in determining what terms and conditions the lender will offer. Here is the best way to prepare for your first loan application:
Use the Cost Calculator Offered by the Lender
The first step also contains an important warning. Never submit a large number of loan applications in order to see what terms and conditions you would receive from different lenders. Doing so will reduce your credit score and may affect your chances of getting the loan.
Instead, go to the lenders’ websites and look for the loan calculators that they have made available to visitors. These web applications are designed to show you exactly how much your monthly repayments would be, as well as what interest rate will be attached to your loan.
Get Your Papers in Order and Keep Them in One Place
While on the lender’s website, also look at what documents and forms are needed as part of the loan request. If you have any questions you should be able to contact a bank representative either by phone call, or through the messaging app that is built into the website.
If, however, you decide to go to the bank and discuss directly with a representative, be sure to specify that you only want additional information and are not yet ready to submit your loan request.
Repay Your Credit Card Debt
Make sure that you pay off any credit cards that you might have prior to applying for a loan. Having a high credit utilisation ratio will have a negative impact on your credit rating and may result in higher interest rates.
You should also make sure that you make all loan monthly payments on time, for at least 3-4 months, before submitting your application. This will give your credit rating a boost and ensure that you get the best possible terms and conditions.
Space out Your Applications across a Large Period of Time
If you’ve submitted a loan application in the past, make sure that you wait at least a month before trying again, regardless of lender. Submitting a large number of applications in a short amount of time will decrease your credit rating and may even affect your chances of approval. The best course of action is to wait at least 30 days between applications and to never request a loan from the same lender twice consecutively, provided that you were refused the first time.
Know What Product You’re Interested in
Gather as much information as you can regarding both the lender as well as the product that you are interested in. Keep in mind that banks are, for most intents and purposes, commercial entities and their representatives will try to emphasize the advantages of a particular type of loan while avoiding the possible disadvantages. Go to the lenders website and read everything that you find regarding the loan that you’re interested.
Apply for the Loan
Lastly, apply for the loan. If you are already a client of the bank, you may be able to submit your application through an app or the lender’s website, however, it is usually better to go to the bank and do so in person. If any of your documents are not in order, there is a chance that the bank representatives will be able to solve the issue on the spot.