If you plan to apply for credit soon, you need to know a few things first. You might already know some of these things but others are not so obvious. Here are the things that you should know before applying for a loan:
Credit History and Credit Score
Your credit history will let the lender know whether you pay your credit obligations on time. The higher your credit score, the better your loan terms will be. When you get favorable loan terms, you will be able to save thousands of dollars over your loan’s life.
The amount that you will save increases substantially when you borrow large amounts of money with a good credit score. Before you apply for any loan, you should get free copies of your credit report and look for errors that might be affecting your score. If possible, you should hold off on taking out a loan if your credit score is bad; take the time to improve your credit score before you apply.
Assets and Liabilities
Potential lenders will also consider your net worth when you apply for a loan. Assets refer to the property that is worth something while liabilities are your financial obligations. Knowing your net worth is also important for your own knowledge.
The loan for which you want to apply will become a liability, but you might be using it to buy an asset. If you want to keep your finances in check, you should calculate your net worth and figure out how the loan will affect it.
Your salary and income from other sources affect your ability to repay your loan. For this reason, you need to have proof of income when you apply for a loan. If you are employed, you should present a few pay stubs to your potential lender as proof of income.
However, if you are self-employed, you should prepare receipts, invoices, and tax returns for the past few years. Just remember to mention all your income sources, not just your primary one. This might include child support and freelancing income.
Employer’s Contact Info
Potential lenders will probably ask you to provide your employer’s contact information. You might also have to give information about your past employer. Employers will be contacted to confirm your employment dates, verify your income, or as references.
No matter which loan you want to apply for, you should pay attention to the current interest rates. They usually play a big role in determining the amount that you will repay. Since most financial institutions and banks might be willing to help you secure a loan, shopping around is a good idea.
Make sure that the following hidden fees are not included in the rate:
– Administration fees
– Processing fees
– Origination fees
– Underwriting fees
– Appraisal fees
Although the fees will not be included in your interest rate, they will be added to your monthly payments. In this case, you would be better off choosing a loan that has a slightly higher interest rate instead of parting with a large payment monthly.
You need to understand your monthly expenses before applying for a loan. If you bring in 5,000 dollars per month but spend 4,900 dollars, you will not be able to pay your new loan. When filling out your loan application form, you need to list your monthly obligations: mortgage payment and bills.
Taking out a loan is not straightforward but the above tips will come in handy. Make sure that you do enough research and shop around before deciding to borrow from a particular lender.