The Top 5 Things You Need To Know When Applying For a Loan In 2018
Applying for a loan can sound like an overwhelming process. For first time applicants and even seasoned investors, it is important to know the fundamentals and changes which have impacted the finance market this year.
Improving your knowledge and awareness of factors that will impact your application will help relieve the fear and skepticism of applying and boost your confidence in applying for a loan. Before you move deeper into the process, read on to help you understand the basics and some of the recent changes to improve your chances of qualifying for finance.
I’ve narrowed down a few key points to help you make your first big step.
1. Get your documents in order before Applying
Banks are asking for more documents and evidence when applying for a loan nowadays. You will need to supply at minimum:
Your last 2 payslips, a payment summary from your employer, 3 months personal bank account statements, evidence of any existing loans, debts or credit cards you have on top of all the other items a bank will request.
The above is to help the lender ensure you have fully disclosed all your liabilities and provide a guide of your monthly living expenses so they can compare the amounts you declare in the application to what you are actually spending and noting any discrepancies.
It is timely to review your spending behaviour and what/where your money is going each month. Lenders are on the lookout for excessive spending and patterns which could ultimately reduce the amount you can borrow compared to someone who is on top of their budget and not over-spending on indulgences.
2. Check your existing repayments and credit score
The amount you pay in any existing loan such as a car loan, personal loan, other property loan and your credit card(s) all impact your borrowing potential. In fact your credit card limit, not the balance, is the important figure the banks use to work out your borrowing power.
If you have multiple credit cards or credit card limits you never use, close or reduce these before making your loan application. You will be received a lot more favourably the lower your existing credit limits and debts are.
Lenders will always perform a credit check on you before lending you their money. They want to see what you have applied for during the past 5 years and if you have any bad credit marks against your name.
This all feeds into what is known as a 'credit score' and essentially the higher your score (read: how clean your report is) the more likely you will be to get your loan approved.
3. Be prepared for more questions
Gone are the days when you can sign a form, send it to the bank and 2 days later get your approval. Banks are more vigilant and prudent in both the amount of money they will lend and the clients they are currently lending to. This is a great thing as it is a protection mechanism to ensure the market is less risky and aims to ensure clients only borrow what they can afford to repay.
Further queries could be asked on any number of factors such as why you changed jobs recently, the reason for the refinance or extra funds you need, whether expenses shown on your bank statements are regular and ongoing, how would you plan to pay the loan out before retirement age etc. etc. etc.
This is all just path of the course and an expectation to be prepared to answer Additional queries to get your loan approved.
4. Banks will choose the clients they want to lend to
With all of the recent industry changes and scrutiny (ASIC, APRA, the Royal Commission) banks are being selective on who they lend to. After all it is their money so they can choose who gets it. For low risk customers who provide all the required information and can meet the standard lending criteria then there is no fear, you will still be able to qualify for loans.
It is becoming more difficult to assist clients with 'non-standard' situations or who fit into the grey areas which might have previously been able to get approved. There is always going to be areas and clients who need special consideration so this is by no mean’s the end of the line. It will just take longer and require provision of further details and evidence in order to assist those clients who the banks might initially not consider as A-grade clients.
Clients who need special consideration now might include those who are:
- self employed clients
- borrowers relying on overtime, shift Allowances or commissions to help prove their income
- people who recently changed jobs or on probationary periods
- those receiving gifted funds towards their deposit
- if you have had late repayments or behind on a loan
- those with irregular incomes such as casual’s and contractors
5. Looking for the 'cheapest rates' is not the way to approach financing in 2018
If you conduct your lender searches through google or going on comparison websites then simply trying to find yourself the cheapest rate is not necessarily going to lead you to the right lender for you.
There are a wide range of other factors which go in to determining which lender you should apply with and that lender might not be the cheapest but they might suit you as they can provide the right solution to you to get your result. A broker can then negotiate with the right lender on your behalf so that you can obtain the sharpest deal they have to offer.
Now that you’ve got everything figured out, make sure you check out all the possibilities from different banks and lenders (there are more than just 4 you know) in choosing the right loan for your needs. It’s now a matter of taking into consideration all the many different factors that will affect your application and preparing so that you can make your application as quick and smooth as possible rather than tiresome and stressful.
Take the high road by getting a professional to do the in-depth research, negotiating and solution providing for which would mean less hassle for you and hopefully the right outcome – an approved home or investment loan.
Would you like to know more?
If you are having problems getting your information in order, are not happy with your current lender or simply don't know where to start for your next pre-approval or refinance, reach out and letʼs talk! You may need help from a mortgage broker to get some advice and/or recommendations to keep you on the right track and move forward with your finances.
I’m happy to help and be of assistance to navigate the complex finance world!
Contact Nathan Sitas for an appointment and free finance review (Valued at $195)
to make contact and book an appointment or reach me on 0478 297 646