When you find yourself in need of money for a large purchase, such as a car, house, or education, chances are you’ll be looking to apply for a loan. While the actual application process for a loan isn’t usually too difficult, there are some things to review, evaluate, and prepare before deciding on a loan and mortgage lender.
Review your credit and score
When you are getting ready to apply for a loan, the first step you should take is to request your free annual credit reports and make sure that all of the information contained on the credit report is accurate. While requesting a credit score does cost extra money, knowing your score may be worth the price when making a major purchase because you’ll know exactly where you stand from the lenders point of view. Borrowers with a higher credit score are more likely to obtain a favorable interest rate and borrowing terms.
If your score and credit report aren’t perfect, you may consider waiting to improve your credit before proceeding with your loan applications. There are some things you can do to improve your credit and following those steps may help you get a better interest rate.
Evaluate lenders and loans
Once you are happy with your credit report and score, it’s time to evaluate loans and lenders. When doing this, look at the various terms available to you. Instead of just looking at the monthly payments, determine what the total cost of the loan is going to be, over the entire term, including principal and compounded interest.
Prepare necessary financial documents
When going through the process of applying for a loan, there are some documents and information that you’ll need to have available to provide to the lender. If you can have these documents available in advance, it will make the entire process run more smoothly. While the documents may differ by lender and loan amount, in most cases you’ll need proof of income, such as pay stubs and/or prior year W-2 forms, as well as savings and investment account statements.
Make payments on time
Once you have been approved for your loan, keep your end of the bargain by making your payments on time.