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How to Apply for a Bank Loan and Improve Chances of Approval

Whether you’re looking to make a big purchase, cover an emergency expense, or build your credit, getting a loan from the bank can provide the extra cash you need to make it happen. But you can’t simply stroll into a bank and walk back out with the cash you need in your pocket. However, there are a few things to keep in mind when applying for a personal loan that will help make the process easier. Our quick guide explains how to get a loan from the bank and how you can improve your chances of being approved for the money you’re asking for.

How to get a personal loan from a bank:

  1. Check and understand your credit score. Banks use your credit score as an indicator of your trustworthiness and ability to repay the loan. They will adjust their loan offer according to your credit history. Although you don’t need a perfect credit score to get a personal loan from the bank, a higher score will improve your chances of being approved. Generally speaking, scores between 690 and 719 are considered good credit on the commonly used 300-850 credit score range. Scores above 720 are considered excellent, while scores between 630 and 689 are considered fair.
  2. Run the numbers. When you borrow money, you have to pay back the principal (the amount you initially borrowed) plus interest. That’s how banks make money. And interest rates vary depending on things like your credit score and borrowing history. Use an online mortgage or auto loan calculator to get an idea of how much you will pay per month to pay back your loan.
  3. Know how banks will evaluate you. When evaluating your personal loan application, banks will typically review the 5 C’s:
    • Credit — your credit history
    • Capacity — factors that impact your ability to make consistent payments on your loan, such as your income-to-expenses ratio
    • Collateral — your personal assets such as a savings account, car or property
    • Capital — your financial assets you could use to repay the loan if you lose your job; capital might include your savings accounts, investments and retirement account
    • Conditions — there are a variety of factors specific to your loan application, and may include how you’re planning to use the loan, interest rate, loan amount and personal debt 
  4. Get your paperwork together. The most time-consuming part of applying for a bank loan tends to be compiling all your financial documentation. Every bank has its own requirements on what financial records they need, but you can expect most will want to review:
    • Pay stubs/proof of income
    • Tax returns for the past couple of years
    • Photo ID
    • Rent/mortgage history
Having these documents on hand before you start applying to get a loan from the bank will speed up the process once you apply.
  1. Compare bank loan rates. It used to be that applying for loans at multiple banks could hurt your credit score. But that thinking has evolved — and doing it allows you to compare different rates and fees, and lets you shop one lender against another to get the most competitive rate. Shop around for the best loan rates before you commit to a loan. It’s a good idea to apply for a personal loan at a few different banks so you can compare offers, fees and rates. But try to do it within the same two-week period so it all counts as one credit pull.
  2. Have a plan in place to pay it back. Once you’ve secured a loan from the bank, it’s important to know what your strategy is to start paying it back. Your payment history makes up a large portion of your credit score. So consider setting up automatic payments from your checking account so you never forget a payment, and consider making extra payments, rather than just the minimum payment, to help you pay off your loan sooner.. Staying on top of payments early can help you hold yourself accountable, and make applying for your next loan even easier.

What types of personal loans can you get from the bank?

You probably already have a good idea of what kind of personal loan you need before you start researching your options. But there are some personal loan options you may be less familiar with. Here are some personal loans you can get from a bank:
  1. Home loan: Buying a house may be one of the largest purchases you’ll make in your lifetime. A home loan, mortgage or home equity loan  can help you buy your dream home and start investing in property. In today’s highly competitive housing market, you may need to be prequalified for a loan before you even start house hunting. Not sure exactly how much you can spend on your new home? Use a mortgage calculator to find out how much your monthly payments will be.
  2. Auto loan: When looking to purchase or refinance a car, an auto loan can be a great tool. As with home loans, you can use an auto loan calculator to find out exactly how much you can expect to pay per month.
  3. Personal loan and line of credit: Maybe you’ve had an unexpected large expense, such as a medical bill, or you want to remodel your home but you don’t personally have the available funds. A personal loan or personal line of credit can give you the financial cushion you need.
  4. Credit card: Arguably the most common personal loan, a personal credit card from a bank is a great way to build credit, earn rewards, and streamline your digital payments.
  5. Overdraft coverage: Even when you’re careful, overdrafts can happen. An overdraft line serves as an extra layer of protection if your checking account is overdrawn. 

How to improve your chances of getting approved

While there’s no guarantee you’ll get approved for a loan, you can boost your chances of approval with these 4 tips:
  1. Rebalance your debts and income. Do what you can to pay down debt before you ask for a loan. And if you can, consider increasing your income by taking on a part-time job or asking for a raise at your full-time job. This will improve your debt-to-income ratio.
  2. Make sure your credit score is at least in the 700 range. If it’s not, check your report for errors — and if you don’t have good credit, work on cleaning up your credit by paying your bills on time and reducing the amount of debt you owe.  
  3. Don’t ask for too much cash. You don’t want to look like a big risk to your bank, so ask only for the amount you need.
  4. Consider a co-signer. If your credit score isn’t good, or if you have no credit, adding a co-signer with stronger credit and income can increase your chances of being approved. But keep in mind that if you default on the loan, your co-signer will be responsible for payments.
We can help with your personal loan
At First National Bank and Trust, we’re here to support all your personal loan needs. Contact us or find a branch to discuss how to get a loan from the bank and what personal loans might be right for your situation.