How to Prepare Your Loan Application with the BanksAbbakin
This article: how to prepare your loan application with the banks will cover the key areas banks look at when you apply for a personal, mortgage or business loan.
With the recent economic challenges, getting a bank loan is no longer the easiest process. This is because financial lenders are now looking for a lot more in a loan applicant.
Banks or financial institutions are different, but many of them focus on similar requirements throughout the loan process.
To get approval for a bank loan, it is important that you learn what documentation, projections and explanations you’ll need to present your loan package for review.
Below are some important guidelines you can follow to ensure that your loan applications are processed and approved with great success.
How to Prepare Your Loan Application with the Banks
#1. Understand the type of bank loans you are applying for
Before heading to the banks for a loan request, you need to understand the loan packages available to you.
You need to know what kind of loan you are looking for, and choose the terms that are suitable to your particular situation.
For example, you may be looking for a specific type of loan such as:
- personal loan (for school fees),
- auto loan (for family car),
- business loan (for working capital)
- home equity credit (or mortgage loan)
- equipment loan (for factory or company)
- real estate financing (for investment)
- other commercial or consumer loans
Whichever one you choose, you should endeavor to find the best loan offer that suits your financial capabilities.
When you find the loan package you are most interested in, contact the lender directly to find out the requirements and your application eligibility.
Most banks and financial houses have different requirements, so discuss the necessary materials, appropriate documents and timelines needed for each loan application.
Your goal here is to choose the loan you will be able to payback as fast as possible.
#2. Understand Your Purpose for a Loan
Before thinking about applying for a bank loan or opening a credit card, be sure to understand how you plan to utilize the fund.
You should be sure you’ve covered your entire plan on how to use the money before reaching out to a bank.
Again, the money you’re borrowing from a creditor must be repaid in a specified amount of time and with interest attached.
Your lender might want to know what amount you want, when you plan to pay it back, and how you plan to use the money.
It’s important that you borrow for something that provides long-term value to you – such as
- house improvements,
- purchasing a new property,
- business investment,
- debt reduction or
- college tuition.
Of cause, your loan terms will determine how much you pay in interest. But be sure to look around for a rate that best fits your situation and ability to repay.
Ask the loan officers for advice and following up events when necessary.
#3. Know What the Banks Are Looking For
Financial lenders will indeed give money to people who appear capable of repaying them.
If you can’t demonstrate your ability to repay a lender, they’re not going to approve your loan request.
You must show that you can and will live up to your repayment responsibilities.
So, here are what the lenders use to determine your ability to repay the loan.
-A- Solid Collateral or Stable Employment
For a business loan, you will need solid assets to back up the loan, in cases where you’re unable to pay it in the near future.
Your business or personal financial record will also be considered too.
Any financial cash flow of the business or transfers to your relatives or friends will be investigated to determine how credible you are as a borrower.
Your employment history is also another key component of your loan application.
Having a steady job gives lenders prove and confidence that you have a stable income that is able to pay your loan.
Thus, it’s important to avoid applying for a loan until you have one to two years of employment to ensure that you have a solid work history.
As a business or individual, the more money you can save from your earnings for a down payment, the more likely the lenders would approve your loan application.
Attempt to save at least 20 percent of the price of the loan sum, the investment capital or the home equity that you’ll be purchasing before approaching your bank.
This will indicate your commitment to the goal.
In assessing whether to finance a small business, lenders are often willing to consider individual factors that represent strengths or weaknesses for a loan.
Your character allows the lender to make a more subjective assessment of your business’s market opportunity and the business management ability of your operators.
-B- Your Credit History and Financial Debts
If you are seeking for a loan, you should be aware of your credit history and credit score!
Most lenders rely heavily on your past usage of credit or loans you might have collected from other financial institutions.
Review your credit history for accuracy, by making sure you clear all debts, errors or outstanding you have in your financial reports.
Your debt-to-income ratio is one of the main factors lenders look at when evaluating your loan application.
If you have a significant amount of debt that makes it difficult for you to get a new loan or can put you at risk of bankruptcy, we recommend you pay off your debt first.
If you have a good history with other debts you’ve paid in full and on-time, a new lender would have reason to think you would perform better with the loan.
Paying off your acquired debts will increase your credibility as a borrower and reduce monthly payments that are made towards debts.
Old debts can also cause your application to be rejected, increase your interest rate and reduce your credit score.
You’ll want to clear up any issue with the credit bureaus to increase your score.
-C- List of Documents you Need to Prepare for the Loan
There are a few documentations you should gather in preparation of filling out a loan application or meeting with a Loan Officer.
These documents may include:
- Credit Report – Most lenders automatically order a credit report from the Credit Bureau Agencies. To ensure they’re seeing accurate information, get a copy for yourself and clear up anything that needs attention before a lender sees it.
- Proof of Income – Depending on which type of loan, you may need to provide a copy of a recent payroll check, probably from your employer or banker.
- Tax Return – If you’re applying for a mortgage or a large business loan, you will most likely need to provide copies of your federal tax return.
- Personal Financial Statement – A lender may also require that you supply a financial statement listing all of your assets and liabilities.
- Business Plan – a business plan essentially sums up and provides evidence for the first four items listed.
The Role of CBN, NIMC and Credit Bureau Agencies in Nigeria
The Central Bank of Nigeria (CBN), the National Identity Management Commission (NIMC) and the three licensed Credit Bureau agencies in Nigeria are collaborating to solve problems related to the identity of loan seekers.
The agencies are: CreditRegistry, XDS Credit Bureau and CRC.
The aim of the collaboration is to reduce incidents of credit abuse and to make it easy for banks to extend credit to those with reliable identification.
The NIMC representation is aimed at resolving problems surrounding the identities of credit seekers, while financial institutions are directed (by CBN), to obtain credit reports on existing loans, and conduct regular applicant portfolio reviews – using credit reports from at least two of the Nigerian credit bureaux.
The gesture would further strengthen credit management system in Nigeria, and ultimately help people to access credit with ease as loan defaults would reduce and banks would feel more comfortable lending as a result.
Wrapping up: How to Prepare Your Loan Application with the Banks
If you request to borrow money from a lender, you should take your responsibility of repaying the lender very seriously.
Potential lenders appreciate that you are thinking about paying them back instead of just putting your mind on getting the money.
Applying for a loan in a hurry is never a good idea; take some time out to secure the best deal.
It may take some time to secure the documents you need from creditors, your employer, and other financial resources.
Incomplete applications, poor credit history, cash flow or projections for the business or lack of collateral to secure the loan can be causes for a loan denial.
Too many loan applications can ruin your credit and prevent your chances of securing one in the near future.
Always apply for a loan based on your financial ability; this will make the repayments plan affordable.
Loan application process can be frustrating, but if your loan application is not approved, ask the lender for the specific reasoning behind the denial.
Plan ahead about the purpose and period of your loans, the interest rates and have a good repayment plan at hand.
Subscribe to our Newsletters now if you want to receive latest updates about innovation, business trends and statistics. You’ll get a free eBook!