How to Take Out a Loan

Consumers acquire loans for various purposes. Common uses include home improvement, starting a business, debt consolidation, purchasing a home and financing a vehicle. And while borrowing is a common practice, lenders have tight lending guidelines, which makes it harder for some applicants to obtain funds. Anyone who wishes to take out a loan ought to familiarize themselves with the bank's loan requirements, and do everything in their powers to improve their approval odds.

Difficulty: Moderate

Instructions

Things You'll Need:

• Credit report
• Co-signer
• Collateral
• Loan broker

1. Obtain your credit report. Lenders will review your credit report upon receiving your loan request. Based on their findings, they will either approve or deny your request. If approved, lenders also use your credit score and credit history to determine a reasonable interest rate. Prior to applying for a loan, order a copy of your free report from the AnnualCreditReport website.

2. Make credit improvements. Once you have your credit report in hand, carefully review the document. Where can you make improvements? If you have a low credit score, postpone taking out a loan until your credit improves. You can quickly add 30 or more points to your score by paying your bills on time, disputing reporting errors and reducing your credit card balances.

3. Gather financial statements. You'll have to complete a loan application and provide proof of income. Lenders request copies of your most recent paycheck stubs, or w-2's for the past two years if you're self-employed. List all additional sources of income on the loan application (unemployment compensation, disability insurance, pensions, and alimony.)

4. Get a co-signer or collateral. A low credit score can prevent you from taking out a loan with a prime lender. However, there are ways around this problem. Find someone with a good credit history and ask her to co-sign the loan. She will become a co-debtor; and if you default on the loan, she's obligated to pay the debt. If you can't find a co-signer, acquire a secured loan. These loans involve collateral, in which you'll supply the lender with a vehicle title, boat title or other valuable piece of property.

5. Contact a loan broker. You want to get the best rate and terms on the loan. To do so, you'll need to shop around and request loan quotes from multiple lenders. Use a loan broker and submit one application. Brokers work with various lenders and they're familiar with different loan programs. Loan quotes feature an estimated interest rate, loan term and fees. Compare the offers and choose the cheapest loan.

Resources

• Annual Credit Report
• E-Loan - Compare Loan Offers