Important Things to Consider for Getting Your First Loan
Getting a loan approval is not easy, especially when you are just out of college and looking to carve out a career of your own with no record to testify your financial responsibility. In the wake of severe economic troubles across the globe, lenders are looking for more and more in a loan application and are incredibly stricter than ever. While there are numerous key areas that lenders focus on, it’s important that you do your homework well and present a complete package for review if you intend to get approved soon.
Here are a few important things to keep in mind for getting first loan accepted without problems.
Check Your Credit Score
Lenders base their judgement about whether to lend you or not upon several factors, including your home status (whether you own your own property or are staying on rent), your income (whether you have a regular influx of cash to repay the loan), as well as your credit report. Now this is where first-time borrowers falter. If you have never borrowed money in the past, your credit report will not contain enough information to turn the lender’s judgement in your favor. As a result, they are most likely to reject you. However, there are other measures to combat this dilemma and we will talk about them later on. For now, it’s important to know that garnering statements from your employer as well as the bank can indicate to a prospective lender that you’ve the financial means to pay off your loan in consistent payments.
Assess Your Income & Monthly Obligations
Your monthly salary and financial obligations are true measures of your ability to repay a loan, so it’s mandatory to have a solid income proof for your application. If you are self-employed, you will need to show tax returns for the past few years and invoices, as well as receipts. And if you are an employee, you will have to show pay stubs. It’s advisable to ask your present employer to make a letter with the company letterhead stating your designation, your current salary, as well as the period of time you have worked for that company. Lenders tend to feel more confident when you have worked with the same company for a long period of time (more than 2 years), as it indicates a higher sense of financial responsibility. The amount of money you bring home every month reflects whether you can afford the monthly loan installments. Ensure to think of all your income sources, instead of just the primary one. This includes your spouse’s income, a part-time job income, alimony and child support.
Request a close relative to act as a guarantor
The most conventional way to get a loan when you have no credit score of your own, is to piggyback on the impressive credit history of another person. A co-signer is a person who promises to take responsibility of your loan debt if you falter later. A direct relative is obviously you best option, though you can always depend upon extended relatives if you lack other alternatives. Whatever be the case, it’s your responsibility to ensure that your co-signer understands what they are signing up for. Remember, your loan will reflect on their individual credit report as well, so if anything goes awry later, their credit score will also take a dip. Also keep in mind that choosing a co-signer with a good credit score will enhance your chances of getting a loan better than if you choose someone with average credit. A lender wants to ensure that the loan will be repaid, and a co-signer with a high credit rating makes them feel more confident about the possibility of a timely repayment.
Start creating your credit history from now
While you go about the process of trying to avail a loan, it doesn’t hurt to start building a little good credit history through verified means. Of course, there will always be those lenders that will consider your tiny credit history as insufficient and unimpressive, but if you can back up your credit score with other records testifying your financial responsibility (like bank statements), it may carry more weight. Speaking of creating credit history, the few official means include establishing a checking or savings accounts, as well as applying for a credit card. Gas and department store cards are usually easier to get. In order to get a secured credit card, you’ll need to make a small deposit once you get the credit account. Also, the card issuer must send this information to the credit bureau if you wish to use the card to create a credit history.
The entire process of loan application can be thoroughly frustrating and cumbersome, more so when the loan you applied for is rejected. In this case, the lender will provide the specific reason behind the denial. It’s dangerous for your credit to keep applying for just any loan you presume you may be able to get. Remember, too many loan applications within a short period of time reflects badly on your credit and narrows your chances of obtaining one in the near future.