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Loan Application Dos and Don'ts

Written by Andrea Klinedinst, Compliance Assistant

Applying for a loan can be a daunting task if you don’t know what steps you should take financially to be in good standing for a loan. You may wonder if there are things you could do to help your loan application or if there are things to avoid that could hurt your loan application, but how can you know what to do and what not to do? To help you answer this question and better understand the loan application process, our lending expert for this article provided some loan application dos and don’ts. Our expert is Greg Lardi, the newest member of our Commercial Lending team. Greg is a Commercial/Ag Loan Officer at MNB’s Canton Banking Center. Greg came to MNB with 19 years of experience and a vast array of knowledge in lending. Read on to see his advice.

Dos:

• Plan Ahead: Before applying for a loan, be realistic with your budget. A banker will know the costs you have that are associated with your credit report. Those payments would include any credit card, auto loan, and mortgage payments, for example. They will not know your power bill, daycare, medical prescription costs, etc. It is your responsibility to repay your debt, and although a banker can be a huge asset in helping you establish your budget, you know your expenses best.

• Know your Credit Report: A major factor in the credit process is your credit report. Bankers will be reviewing your payment history, your total credit used, exposures to credit cards, and credit scores to make a credit decision. They will also see any negative reporting in the credit report. Review your credit report for that reason. Make sure the information on your credit report is accurate. Work with your banker should you have negative history on your report. They will be able to advise you on how to repair your credit. A declined credit request should not be looked at in a negative light. There is work to do to put yourself in position to make a loan happen certainly, but your banker will be there to help advise you on ways to repair your credit.

• Know what's required to apply: Bank loans require more than just your credit report to be approved. Most loan requests will come with a request for income information. Bankers will use pay stubs, W-2’s, Tax Returns, and bank statements to determine if a loan can be approved. Avoid a frustrating process by talking with your banker about what income information will need to be provided in the loan process. Being efficient and accurate with this information will make your loan application experience a good one.

• Ask Questions: Make sure that you understand your loan documentation. If there are details that you don’t understand, stop and make sure you talk through that prior to or at your loan closing. Again, it is your responsibility to repay your loan note, and the loan documentation is a legally binding document. Understand the terms well to avoid frustration down the road.
  • Some examples of details you should know before you consider taking a loan:
    • What is the Annual Percentage Rate of my loan?
    • What are the fees that may need paid at closing?
    • What are the fees for late payment, and what is the grace period before the fee is applied?
    • What is the due date of the loan payment? Is this a good date for my monthly budget?

Don’ts:

• Don’t apply for the same loan at multiple places: Each lender will need to pull your credit, and pulling your credit multiple times in a short time frame may have a negative impact on your credit score.

• Don’t be inaccurate with your financial information: Don’t fudge your financial information in hopes that you’ll qualify for a loan. Outside the fact this can have legal consequences, obtaining a loan that you are struggling to repay because it was provided on a false budget isn’t good for anyone, especially the borrower.

• Don’t do an impulse buy: The feeling of wanting a possession is a powerful feeling. Take some time to consider purchases and determine if they are wants or needs. 
  • Some questions to ask yourself:
    • Do I want or need this loan?
      • Wants aren’t always a negative thing, but needs should be prioritized over wants. Wants also should not put significant stress on your budget.
    • Is there an alternative option that would fit your budget better?
    • What would it take for me to save for this item? 
• Don’t miss payments: Once you consider your loan request carefully and you decide to go through with it, avoid missing payments. This negatively impacts your credit score, disrupts your relationship with all lending relationships, and negatively impacts your future ability to borrow.
  • It is best to be proactive with communications with your banker should you find some unexpected expenses are straining your budget to the point where you can’t fund your loan payments. That is a stressful situation for anyone, but avoiding the conversation with your banker will only add to the stress.