5 Things You Need to Know Before Applying for a Loan

  • Financial Advice, Loans
  • July 15, 2021
  • FCU Team

If you’re ready to make the next big-ticket purchase in your life, there are loans available to help you get there. From mortgages for your dream home to auto loans, personal loans or student loans, achieving your next milestone could be within your reach.

Are You Ready to Apply for a Loan?

Based on the amount you would like to borrow and how much debt you can reasonably carry, lenders are able to provide funds and break up a big expense into manageable, monthly payments. Credit is power, but it’s also a responsibility. If you’re looking to secure a loan, it’s important to take proper steps. We’ve created a checklist to take the guesswork out of preparing to submit your loan application.

Your Loan Submission Checklist

Unlike a credit card, a loan requires you to pay fixed installments over a set period of time until the debt is completely paid off. With a structured system comes a need for preparation.

Check Your Credit Score

When it comes to applying for a loan, your credit score takes the lead. Whether good or bad, credit scores play a big factor in your loan terms. Better credit scores can reduce your interest rates.

For example, let’s say you secure a $25,000 loan over the course of 5 years. With a low credit score, your interest rate could be as high as 10%. A 10% rate could result in you paying nearly $3,000 more than someone who has a 6% interest rate with the same 5-year term! If you feel your credit score could use improvement, be sure to check your report for errors or hold off on a loan until you’ve taken additional measures such as paying bills on time or reducing other debts to improve your credit score. Boosting your credit score could potentially save you thousands over the life of your loan!

FCU members can check their FICO® credit score every month through online and mobile banking!

Review Your Income

Your monthly income will play a big role in your ability to pay off a loan. At this early stage of the process, it’s a good idea to estimate how much you can afford to put towards a monthly loan payment, based on your current monthly budget. This estimated monthly loan payment should be calculated with your lifestyle and savings goals in mind. So, how should you calculate your estimated monthly loan payment? Total your income from all sources, then subtract monthly expenses to find out how much wiggle room you have for a loan payment.

Know Where You Want to Apply

It's important to know where you'll apply before you start. Every time you apply for a loan, the result is a "hard inquiry" into your credit score. In their most recent model, FICO® ignores auto, mortgage, and student loan inquiries if made within the last 30 days. This means that if you keep your loan applications within a 30 day timespan, you shouldn't see an impact on your score. So make a list of potential lenders and stick to it!

Set Aside a Down Payment

It’s one thing to have your money ready for a down payment, but it’s another to get it approved by your loan program. Most conventional lenders request that your financial standing is strong for at least 60 days prior to making your down payment. So, if you’re looking to deposit a lump sum of cash into your account to put toward your loan, be sure to do it well in advance to avoid any issues during the application process. Ultimately, this assures financial institutions that the money is secure and reported on your credit report.

Gather Your Documentation

To round out your checklist, we end with one of the most important items on your list: documentation. Applicants often get frustrated with the loan process because they don’t have their documents ready for review. In this case, it’s a good idea to create a folder to carry your documentation, equipped with a list on the cover of everything it should include.

Documents required will vary based on the type of loan requested. Before you lose your chance to snag that dream home or car for sale, be sure to research and prepare the required documentation: for example, having your credit report, bank statements, income materials, etc., ready to go.

Rid yourself of the stress of the loan application process and take the steps to make it smooth sailing from start to finish. While the decision is big, the rewards are bigger. Visit your local Florida Credit Union branch, apply online 24/7, or talk to our team to get started!

 

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Florida Credit Union is a full-service financial institution. Founded in 1954 as the Alachua County Teachers’ Credit Union, FCU now services over 120,000 members in 48 counties throughout North and Central Florida. For more information on the services we provide, visit FLCU.org or call us at 1-800-284-1144.