There’s always something a little intimidating about applying for a loan. Maybe it’s the thought of having a stranger look at your financial life. Maybe it’s the fear that you’ll be turned down.
The truth is that applying for a loan doesn't have to feel scary. There are some common mistakes that many people make when applying for a loan, especially if it’s their first time. But knowing what they are and how to avoid them will provide you with an experience you can feel confident with.
Loan Mistake 1: Not Checking Your Credit Score
When you apply for any loan, the first step should always be to check your credit score. This number is based on your credit history and current debt levels, and it gives a lending advisor an idea of how trustworthy you are as a borrower. If your credit score is low, you won’t get a good interest rate—and you might have trouble getting approved at all.
While you can get a free copy of your credit report once a year from any one of the Big Three credit reporting companies (Experian, Equifax and Transunion), you can also check it for free by logging into your First Alliance mobile app or online banking account.
If your credit score is 600 or less, you should consider taking anywhere from six months to a year to improve your credit score before trying to get a loan. Pay off your outstanding bills, pay down your debts and make sure you’re paying your existing bills on time. Doing so will set you up to qualify for a better interest rate, which will save you money. Pay down existing debt will also help you to better afford the payments on a new loan.
Loan Mistake 2: Not Researching Multiple Offers
When you’re looking for a loan, you don’t want to take the first offer you get. Doing so could cost you hundreds, if not thousands, of dollars.
Different financial institutions have different terms on their loans, ranging from the interest rate to the loan’s term to the fees they charge. You’ll want to shop around and compare what each institution has to offer. Make sure to pay attention to these loan features:
- Interest rate—how much interest will they charge you?
- Fixed or variable Rate—will the interest rate on the loan change or will it stay the same?
- Loan term—how much time will you have to repay the loan?
- Fees—what will the credit union or bank charge you to set up the loan?
- Flexibility—can you pay off the loan early without paying a penalty?
If the financial institution your researching isn't willing to provide you answers to these questions, its best to cross them off the list and find one that is willing to be transparent and answer all your questions.
Loan Mistake 3: Lying About Your Income and Expenses
This is without a doubt the worst mistake you can make. While you might be tempted to fudge the details about how much you make and how much you owe, this is technically considered fraud. If a lending advisor realizes you’ve misrepresented this information, you can rest assured you won’t get the loan.
Worse, if a lender realizes you’ve lied about your income and expenses after you’ve gotten the loan, they have the right to demand immediate repayment. They’ll probably also alert the authorities that you’ve committed fraud, and you will face criminal charges.
Even if the lending advisor never finds out, you can still get into serious trouble. The biggest reason a lender wants to know about your financial situation is so they can give you a loan which you won’t have trouble paying off. While this might be frustrating if you had your heart set on buying a new Ferrari but only got enough money for a used Chevrolet, you can take comfort in knowing you’ll be able to afford your loan payments.
Loan Mistake 4: Submitting Multiple Loan Applications at the Same Time
This is an understandable mistake to make. After all, if you’re trying to rent an apartment or buy new insurance, sending out multiple applications just makes sense.
Applying for a loan, however, is very different. Each lender you apply to will make a hard credit check as part of the application process, and each hard credit check lowers your credit score by a few points. If you apply for a loan at four or five lenders, your credit score could drop up to 20 points!
Instead, focus on one lender at a time. If you don’t get the loan you want, you might want to reassess your financial situation before trying again. This is also why it's important to research lender before you submit an loan application.
Loan Mistake 5: Not Examining the Terms and Conditions
Nobody likes reading terms and conditions. They’re long, boring and filled with technical language you may or may not understand.
However, you need to read the terms and conditions of any loan for which you have applied. It won’t be fun, but you need to know what you’re getting yourself into.
When you read the terms and conditions of the loan, you’ll have one final chance to look over the loan terms, as well as any fees you might have to pay for missing a payment or paying off the loan early, as well as any options you have if you encounter financial hardship. Remember, you’ll be paying off this loan for months, if not years, so you need to understand the rules now.
Get The Loan You Need At First Alliance Credit Union
When you apply for a loan, you want to make sure to get the process right. Avoiding these mistakes may not help you get the exact loan you want, but they will make the loan application process a lot easier.
You can also make sure your application process easier when you when you become a member of First Alliance Credit Union today. Our experienced lending advisors will help you through the loan application process and make sure you get an auto loan that works for you.