Borrowers often ask us “how do I apply for a loan and what do I need to do to show I am a good borrower?”. To be seen as a good loan applicant and potential borrower virtually all lenders (whether its a bank, credit union or individual) want to understand three main features about you:
- Can you clearly explain for what purpose you will use the loan funds
- Are you honest and willing to disclose information about yourself
- Do you demonstrate an ability to manage your personal finances
When you start applying for loans (personal loans, home loans, business loans etc) you need to have a simple and easy to understand reason for needing a loan. The answer could be something like “I am currently working as a technician however I want to start studying at university part-time and require funds to pay for tuition fees”. This simple and clear rationale lets a lender know that the money will be spent for a purpose and serves to improve your life in some way.
For a bank or financial institution to part with their money they will want to be certain that you will repay the loan and the primary guide is how much information you are willing to tell them about yourself. The more info you give them about your past (in particular how you explain any credit defaults or late payments) is a clear guide as to how you will behave yourself in future and your reliability as a potential borrower.
The final point in demonstrating an ability to make the required monthly repayments is based on several factors including how much you currently earn, any debt you already need to repay, whether you have a history of defaults (or even bankruptcy) and also how you manage your personal finances. There are many people who live financially sound lives even though they carry significant amounts of debt…the trick is in how you prioritise repayments and live within your means.
When you go and apply for your loan remember to take with you the following:
- Personal identification forms (e.g. passport or drivers licence)
- Payment slips or tax returns as proof of income
- Details on other loans or credit cards and also any assets you own
- Reason for wanting a loan
Hopefully this summary of what you need to be a good loan applicant will help you get that loan.
Best wishes to all loan applicants!