In partnership with Great Southern Bank.
Getting a loan isn't always a straight forward process. In fact, it can be quite time consuming.
It doesn't matter what the loan type, there are many factors that need to be taken into consideration, both on your end and the bank's.
When it comes to long term financial success and managing your debts, preparation really is the key.
So, if you're considering applying for a loan in the near future, here are five simple steps that will help give you the best chance for success.
1 - Payoff existing debts before taking on more
When applying for a loan it is important to remember that for the bank, your loan is an investment on their behalf. So, they want to ensure that if they loan you money, you actually have the ability to pay it back.
If you have a steady, regular income stream and very few liabilities, you are far more likely to secure a loan. Conversely, if you walk into a bank and tell them that you have ten other monthly repayments totaling 70% of your income but you think you can afford to add an eleventh, they will be far more hesitant.
That's why one of the best things you can do before applying for a new loan, is to reduce your overall debt burden.
Start by paying off the debts with the highest interest rates first. Then move onto the others. This is also good practice for when you get the new loan too.
2 - Improve your credit score
Another important thing to realise is that when you walk into a bank and apply for a loan, they're going to check your credit score.
It is also going to be a key factor in determining your interest rate and ultimately whether or not they choose to loan to you.
The good thing about accessing your own credit report is it gives you the opportunity to ensure it is accurate. At times there can be errors on them that are making it harder for you to get loans.
Your credit report will let lenders know things like whether all payments on your credit cards, loans or bills, over the last two years were made on time.
It also records payments of $150 or more that are overdue by 60 plus days as well as how many applications you've made for credit in the last five years.
If your credit score is low, there are steps you can take to help improve it. These include lowering your credit card limit; making fewer credit applications; and making sure all of your bills are paid on time, in full, each month.
3 - Save a deposit
Saving a deposit is another good idea if you are applying for a loan, it lets the bank know that you have some skin in the game.
It also demonstrates that you are responsible with your money and have the ability to budget and save. In other words, you're a safer investment.
If you are applying for a home loan, a deposit is an absolute must. In most circumstances a bank will expect you to put down 20% of the purchase price at the time of sale.
However, under the government's First Home Loan Deposit Scheme (FHLDS) and New Home Guarantee (NHG), more than 100,000 first home buyers are being given the opportunity to get into the market with a 5% deposit.
While this is undoubtedly a great opportunity for some, it is still a massive chunk of change! For example, if you want to buy a home worth $500,000, that's still $25,000 down. So, start saving!
4 - Use a loan repayment calculator to figure out your repayments
It is important to remember that you will have to continue to make loan repayments in the future. So, it is something that will have to be permanently factored into all future budgeting.
That means the first step in taking out a loan has to be figuring out how much you can realistically afford in repayments.
Once you have figured out your budget, the next step is to use an online loan repayment calculator to see how much you can borrow. It can also help you to figure out your interest rates and the desired term of the loan.
This will help you when negotiating your interest rate and prevent you from getting rejected for credit, which will negatively affect your credit score.
5 - Shop around for the most competitive interest rate and make sure you understand your contract
This one is really important because a couple of percentage points in interest can make a massive difference to your repayments in the long run!
That's why it is important to make sure you are getting the best possible deal you can. Make sure you know what your options are. Most importantly, make sure you understand the fee structure and the fine print.
Whether it's a car loan, a personal loan, a business loan, or a home loan, you need to fully understand your obligations and make sure this is the right financial product for you.
So there you have it...
Taking out a loan is a big financial decision but if you plan ahead and apply a little bit of know-how, you can make smarter choices and save a lot of money in the long run.
Story in partnership with Great Southern Bank.