Applying for a bank loan
If you’ve never applied for a bank loan before, you probably have no idea what to expect from the process.
There are different ways to apply for a bank loan. Often it is the TYPE of loan you are applying for that determines the approach. For example, if you’re applying for a car loan, you might fill out the application at a car dealership.
If you’re applying for something like a signature loan, mortgage loan, or business loan, you can apply directly at the bank or through online applications.
Talk to a professional
Make an appointment with a loan officer at your bank. Sit down with them and discuss the type of loan you’re looking for, what your goals are, and a little about your financial situation. A loan officer may be able to give you guidance and suggest options you haven’t considered. You may be able to get a realistic estimate of the chances of your loan being approved.
Provide your information
One of the first things you’ll be asked to do is fill out a loan application. The application is the bank’s method of collecting demographic information, income information and your credit history.
Be prepared to provide information such as:
· Name
· Address and telephone number
· Date of birth and social security number
· Employment information, such as employer name and length of employment
There may be other questions depending on the internal policy of the institution and the type of loan.
The bank analyzes your information
Using your applications as a baseline, the bank continues to research and determine what risk would be involved in lending to you. Their procedures may look like this:
· A credit report and/or credit score from the credit bureau(s) is required with your name, date of birth, address and social security number.
· The bank looks at your credit report to see how long you’ve had credit. If you have no previous credit, it is difficult for the bank to assess the level of risk when granting a loan, so it may be refused. The longer the term of the loan, the more ability the bank has to see how you have handled the repayment of the loan over time.
· Your credit score is based on a formula that combines a lot of data about you and creates a number that instantly tells the bank how much of a risk you are. Know your credit score.
· The credit report lists “inquiries” from companies to which you have applied for credit. Lots of inquiries are a bad indication, as it looks like you’re constantly shopping around for credit.
· If your credit report shows slow payments, late payments, unpaid collection items, etc., you will be considered a very high risk.
· Your length of employment is a consideration because the bank wants to feel that you have a reliable source of income with which to pay debts.
· The bank will look at your ‘debt to income ratio’. They want to know what percentage of your income is already committed to paying debt. This is a good indication of whether you can afford the loan. Know your debt-to-income ratio.
· How long have you lived at your place of residence? The bank wants to know if you are relatively stable or if you move around a lot.
The bank completes its assessment and takes one of the following actions.
· Notifies you that the credit has been approved. In this situation, you will need to sign certain loan documents that set out all the terms of the loan. You will then receive the proceeds of the loan (money) or the asset received with the loan.
· Notifies you that the loan request will be deferred to the next meeting of the loan committee. The “loan committee” is usually made up of bank officers who meet periodically to hear the presentation of loan requests that are either minor or need to be brought before the committee due to the size of the loan, the amount of the loan exceeds the loan officer’s upper limit for approval, or various other reasons. The committee hears loan requests and votes to approve or deny.
· Notifies you that the loan request has been denied. In this case, you should receive a document called a Notice of Adverse Action, which will provide additional information about the denial.
Do your homework before applying for a loan. You should be able to get a pretty accurate idea of whether you will qualify or not.
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