Getting a Bank Loan

With its mahogany desks and polished marble floors, some borrowers find banks intimidating. Even if you have an excellent relationship with your banker, getting a bank loan is not always the easiest endeavor. Bankers must follow strict requirements set by the institution. Knowing what to expect when you apply and following three strategies is the best way to expedite your loan process.

Credit Requirements for a Bank Loan

In most cases, you need good credit to get a bank loan. Although most financial institutions have ties to finance companies specializing in bad credit loan options, your banker needs to see a credit score of at least 650 on the scale of 300 to 850. You may even need a score as high as 720 to qualify for favorable rates and less paperwork.

To have a more positive lending experience with your bank, pull a copy of your credit report on a regular basis. If it shows incorrect information, fix it. When you know you have blemishes on your credit, prepare a document explaining any extenuating circumstances. For example, a low credit score due to unpaid medical bills isn’t always viewed the same as a low credit score for poor money management. Providing this information upfront saves time because the underwriter won’t have to ask for clarification about the situation.

Collateral Requirements for a Bank Loan

Banks have some of the strictest guidelines to follow concerning collateral. Just because a used car qualifies for financing at the dealership doesn’t mean your bank can refinance the loan for you. Bank loans require vehicles to be no older than a certain age, usually five years, and have sufficient value to cover the loan plus their administrative costs. This means that a loan of $8,000 can require a vehicle value of $10,000 to allow the lender breathing room.

Before you visit your bank for a secured loan, investigate the value of your collateral. Remember to use the wholesale value rather than retail cost because banks sell cars and homes at auction in the event of repossession or foreclosure. If you feel your collateral justifies a higher loan amount than the wholesale value indicates, prepare to back up your claims with upgrade details or market comparisons.

Paperwork Requirements for a Bank Loan

Paperwork and documentation requirements are frustrating aspects of any bank loan. While you can understand the lender’s need to verify your income, the amount of documentation may feel excessive. As a rule of thumb, take two years of tax returns and your most recent paystub for loans exceeding $25,000. Your banker may not need it, but having everything ready at the time of applications saves you from digging through your files and faxing lengthy returns the following week.

It may never be easier to get a bank loan than it is a direct mail credit card offer, but following these few tips can help you enjoy as smooth a lending process as possible.

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