If you’re in the market for a loan, the process can seem overwhelming.
By Camilla Dabney
There are a variety of products and different financial institutions have different methods of evaluating your credit-worthiness. In addition, being turned down for a loan can hurt your credit score and jeopardize your chances of securing a loan in the future. Before you apply for a loan, here are some tips to help you secure the best loan possible.
Understand Loan Types
It’s important to understand the various loan products that are available to you, and which one will work best for your needs. Are you looking to purchase a home, or pay down credit cards? Are you financing a renovation, or taking the trip of a lifetime? There is a different loan available for each one of those. If you want to buy a home or a car, you will be looking into secured loans, where the loan is backed by the value of the property that you are purchasing. If you’re trying to pay down debt, it is an unsecured loan where you aren’t putting anything up to secure it. Do a little bit of homework to find out which loan product is right for you.
Check Your Credit Score
Before you begin, you should get a copy of your credit report and verify that all of the information on it is accurate. You may also want to pay a little bit extra to see what your score is or see if your regular banking institution offers free credit monitoring that will provide it for you. If you find out that your credit score is deplorably low, spend some time working to improve it before you put the effort into an application. Taking a few months to fix your credit problems could wind up saving you hundreds of dollars each month going forward.
Pick the Right Lender
Some lenders will not lend to people with a credit score of less than 700. Others are more willing to work with borrowers who have had some trouble in the past, as long as they show continued improvement. You should be able to check online to see if a lender that you are considering will work with you before you apply. Applying for a loan that you won’t even be considered for will cause a significant hit to your credit score, so make sure you are targeting the right lender.
Pay Down Small Debts
If you have any small outstanding debts, especially if you have several of them, will help to increase your appeal for a lending institution. Having small debts that you haven’t paid off can make it look like you aren’t likely to pay back a larger one. Scrape together whatever extra cash you can so that you can clean up your credit report. Also, be aware that paying it off and closing it will increase your available credit usage, which means you will owe a higher percentage of your overall credit, which never looks good. You want to make sure that you haven’t over-utilized your credit as that is an indicator that you are a higher risk.
Grow Your Savings
Lenders will consider all available assets that you have when they are considering your application. If you can find a way to grow your savings a bit, it will show an increased financial responsibility on your part and can improve your chances of getting approved. Even if you only have a small amount of money saved, you can put it to work for you by investing. Online day-trading platforms and Forex trading are a great way to get started and you can begin with as little as a few hundred dollars.
Following these tips will help you to ensure that you are getting the best possible loan for your needs. Entering into a loan should be a process that takes time; if you jump into one quickly, you may not be getting the best interest rates or terms.
Camilla Dabney is an editor at Businesscheck.co.nz and Canadabiz.net. She creates a variety of articles about careers, entrepreneurship, technology, business, education, as well as travel and personal development.