If you are applying for your first loan, you need to learn certain information about it. This information can include your income, credit score, employment contract information, and more. The data is crucial for your awareness as it helps your potential lender better understand your loan application.
So, in this article, we will discuss the five most important things you must know before applying for a loan.
1. Credit Score and History
A good credit score is a testimony showing lenders that you pay your debts on time—the more the credit score, the better the chances of securing a loan. Knowing your credit history before applying for a loan is essential as it determines your interest rate and terms.
Using a loan application with bad credit can cost you thousands of dollars. So, check your credit score and report any error that could push your score down. If your credit score is not good, do not apply for the loan and try improving it instead.
2. Your Net Income in your Loan Application
The income you take home shows your ability to pay off a loan. It is the most critical information for a lender to know in order to approve your loan application. You will need proof of income, pay stubs, salary letters, and W-2 forms.
When applying, it is essential to list all your income sources and not just the primary ones. The secondary income sources may include a second job, child support, or freelancing income. However, if you are self-employed, you will need your tax returns for the last two years and your bank statements showing your income.
3. Monthly Debt Payments
Monthly debt payments, like your income, are crucial for your loan application approval. Your lender will ask about your monthly debt obligations, so it is better to be prepared beforehand.
A new loan application always requires the borrower to list the obligations that can come. These obligations generally include mortgage payments, short-term debts, and credit card payments.
4. Contact Information in you Loan Application
Your potential lender will ask for your current employer’s and past employer’s contact information. They do so to verify your income and employment dates as well as your present contract. So, it is essential to gather this information before submitting your loan application.
5. Assets and Other Applications
There are generally two types of loans: secured and unsecured loans. If you are applying for an unsecured loan, you are not required to submit the details of your assets. However, if you are looking for a low-interest rate and secured loan, keep your assets information with yourself.
For secured loans, you must show proof that you own this asset. In this, the borrower gets a loan at a low-interest rate. However, the downside is that you will risk losing your purchase if you fail to make payments.
If you want your first loan application approved, prepare for it before applying. Know critical information about your credit score, income, and monthly debt payments, if any, to educate your lender and yourself.