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If you’ll be applying for credit soon, it is important that you?know certain information, both so?you can supply it to potential lenders as well as for your own awareness. A few of these stuff you may know off the surface of your face, like your income and expenses, but there are also stuff you will want to look into before you apply for your loan, just like your credit rating and value. Let’s dive into what you need to know before you decide to apply, and why.
1. Credit rating and credit history
A good credit rating and credit rating show lenders that you pay?your credit obligations on time. The greater your credit, the better your chances of securing a loan at most favorable terms. The best terms can help you save thousands over the lifetime of your loan. For example, here’s what a 1- or 2-percentage-point improvement in interest can mean for your wallet on a $50,000 loan paid over 60 months (five years):
| Interest Rate | Monthly Payment | Total Interest Paid |
|---|---|---|
| 3% | $898 | $3,906 |
| 4% | $921 | $5,250 |
| 5% | $944 | $6,615 |
In this case, the main difference from a 3% and 5% interest rate is $2,709 in interest over five years. This number increases substantially if you’re considering a much larger, longer-term loan, just like a mortgage.
Before you apply for a financial loan, know your credit rating and?pull your credit history?to check on for errors that could drag down your score. If your credit isn’t fit, we’d recommend holding off on applying for a loan, if at all possible. Meanwhile, work to?improve your credit?to save yourself potentially 1000s of dollars.
2. Income
Your take-home pay affects what you can do to repay a?loan, so you will need to have evidence of income for your application. If you are an employee, you’ll need pay stubs, W-2 forms and/or an income letter from your employer. A high level self-employed applicant, you’ll need tax returns within the last two-plus years and possibly invoices and receipts.
Of course, you have to know just?how much you’re buying every month so you’ll know whether you really can afford monthly loan repayments. Make sure to think about all of your income sources, not just most of your one. This may include a spouse’s income, supporting your children and second-job or freelancing income.
3. Monthly payment obligations
Your earnings are only one part of the equation; it’s also important to know your payment per month obligations. In case your income is $5,000 a month however your payment obligations are $4,950 per month, you won’t realistically have the ability to pay off a new?loan. A?application for the loan will likely require you to list certain obligations – typically your rent or mortgage payment and maybe existing monthly debt payments.
4. Assets and liabilities
Another thing your potential lender may look at is the value, or perhaps your assets minus?your liabilities. Assets are the things that you own that are worth something, much like your investment accounts and properties, and liabilities are the financial obligations you’ve, such as your education loan debt or mortgage.
Knowing your net worth is essential for personal knowledge as well. The loan you’re applying for will become a liability, which you may be using to buy a good thing. Calculating your net worth – in addition to how it will change when you get the borrowed funds – is a superb method to keep the finances in check.
5. Employer’s contact information
Potential lenders will most likely?request your present employer’s contact details and perhaps a past employer’s information. Your current and past employers may be contacted as references in order to verify income and employment dates.
Erin El Issa is really a staff writer covering personal finance for NerdWallet. Follow her on Twitter @Erin_Lindsay17 as well as on Google+.
Image via iStock.?
