Getting a Loan

How To Successfully Qualify For A Bank Loan?

Before applying for any kind of loan, it is prudent to analyze just how much money you need and precisely how long you need it for. Then compare the rates and conditions you will have to abide by for the use of someone else’s cash.

Financial institutions offer many types of loans under many different names. In addition to auto loans and home mortgages, there are, for example, home improvement loans, used for financing repairs, remodeling, additions or other improvements to a house; small business loans, made to individuals who own their own companies to finance operations or buy new equipment; special short-term loans for a variety of purposes; “demand loans” or “time notes” that can be used to tide a person over a number of months or until a specified date when expected funds will have come in and the loan can be paid in full; “swing” or “bridge” loans to enable a house buyer to close on the contract for a new home while waiting for the money due on the purchase of his or her old one.

In all loans — particularly the most common ones, “consumer” or “personal” loans that are ordinarily paid back in monthly installments — bankers are mainly interested in two things: the purpose of the loan and the borrower’s ability to repay it. They are usually less willing to lend $5,000 for an extended vacation in Europe than to lend the same amount for the payment of medical bills or the installation of a brand new heating system for the home.

As a practical matter, a loan officer may have a hard time knowing what the money actually went for; your ability to repay is the primary concern. Though the figures vary, most banks do not like to lend you a sum that exceeds 20 or 25 percent of your gross income — $6,000 to $7,500 on a salary of $30,000, for example — or an amount that would make your total monthly payments larger than a week’s salary, including your debts (and in the case of mortgages, including payments towards taxes and insurance on your home). But, again, banks don’t make a fetish of verifying people’s stated incomes. They are likely to pursue the matter in detail only if the loan is for a large amount and the collateral or security interest is inadequate or shaky. Moreover, if they have any misgivings about you, they can scrutinize your credit history to see how well you have handled credit in the past.