Applying for a loan is a process that fills you with almost equal parts of relief and stress. While the relief comes from thoughts of financial comfort that you can practically feel within arm’s reach, the stress stems from ideas of your loan getting rejected for one reason or another.
To become more confident in the loan application process, it’s good practice to check your financial status before reaching out to lenders. This gives you more insight into your overall financial standing while also identifying any areas that you need to improve to get your ideal loan terms.
To assist you with this journey, here’s how you can do a personal finance checkup for loan applications.
Your Credit History
No matter if you read a guide to personal loans or credit cards, you may often see the requirement to check your credit history. It is because lenders quickly jump to this factor to determine your suitability for a loan. This applies to all types of lending products that range from auto loans to mortgages and everything in between.
By understanding the basics, like “what is a good credit score?” you can see if you meet lenders’ criteria for your required type of financing. Otherwise, you can work on improving your credit score before starting the loan application process.
Your Overall Income
Your income is the most crucial part of your personal finance foundation, which also holds when assessing your financial profile for loans. In addition to determining how much repayment you can set aside for your new loan, this also calculates your debt-to-income (DTI) ratio, which shows how comfortably you can manage all of your existing debts.
In some cases, qualifying for certain income thresholds also gives you access to specific loan programs for individual and commercial loans alike. This way, you can reap rewards such as low interest rates on your new loans.
Your Possible Collateral
While learning about factors that increase your loan approval chances, you may see the advice to go for secured loans that are tied to collateral, such as your home or car. It’s because collateral can often tip the scales in your favor and allow you to get your loan without jumping through hoops.
Whether you own a joint bank account with your partner or manage your finances individually, exploring your suitability for a secured loan can be a beneficial choice. Keeping this in mind, you may want to consider these options whenever possible.
Your Down Payment
If you’re buying something with your loan, such as a car through an auto loan, you often need to come up with a certain ratio of down payment yourself. This can be a big ask for major purchases, but it remains an almost universal requirement across all types of lenders.
Similar to learning how to choose between different types of loans, taking your time to assess your finances can help you see how much down payment you can afford. This may often involve looking into your budget or investment app to collect these details.
Your Loan Term
If you have ever used a quarterly goal planner to reach major life milestones in record time, you may already have an idea of how important your loan term can be for your financial well-being. In most cases, the longer the loan duration, the more expensive the loan becomes.
This calls for you to choose shorter loan terms to save your money while also increasing your chances of getting your application approved. To minimize setbacks far into the future, lenders prefer shorter loan terms that give them higher chances of recovering their amount in full.
Through this easy checklist, you can make your way through personal finance assessments without breaking a sweat. In the long term, this can help you open doors to financial freedom while ensuring that you are ready to take on the obligations that come with lending products.
