How to Apply for a Bank Loan
You need some quick money to help cover the costs of your children's college education. You need some extra cash to cover that home renovation or to pay down debt that comes with higher interest rates. A personal loan from a bank might provide you with this money. But before applying for a bank loan, you'll need to compile the paperwork that proves you can pay back your loan. You'll also have to decide whether to apply for a secured or unsecured loan.
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Things You'll Need
- Copies of your current loan statements, including auto, student, mortgage or others
- Copies of your two most recent paychecks
- A letter from your employer verifying your employment status
- Copies of your two most recent federal income tax returns
- Copies of your savings and checking account statements
Instructions
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1
Gather the financial paperwork you'll need to prove to your bank that you will be able to pay back your personal loan. This includes making copies of the documents that verify your gross monthly income: your two most recent paychecks, federal income tax returns from the last two years, and a letter from your employer stating how long you've worked at your current company. You also need to make copies of the paperwork that verifies your monthly required debt payments: your mortgage, car, student or other loan statements, and your most recent credit card bills.
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2
Contact your bank and ask about personal loan options. You can also shop around at other banks or lenders. Origination fees and interest rates will vary from bank to bank, so be sure to talk to several loan sources.
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3
Decide whether you want to request a secured or unsecured loan. A secured loan is backed by some form of collateral, often your home, a car, a boat or some other valuable asset. Secured loans, because they do offer collateral, come with lower interest rates. This is because the bank can take your collateral if you fail to make your payments. Unsecured loans come with higher interest rates because they don't provide this protection to banks. They are less risky for borrowers, though, who won't lose an important asset if they default on the loan.
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4
Give your bank permission to run a credit check on you. This will give them your three-digit credit score, a numerical representation of how responsibly you've managed your money in the past. If you regularly miss payments or run up large amounts of debt, your credit score, commonly known as your FICO score, will be low, and your bank will charge you higher interest rates or not approve you for a loan. Lenders consider scores under 620 to signify a borrower who is more at risk of defaulting. Scores of 720 or above generally qualify borrowers for lower interest rates.
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5
Send your bank the paperwork you compiled in Step 1. Your banker will use it to determine if your monthly income is higher enough than your monthly debt obligations to qualify you for a loan. Banks usually like to see that your monthly debt totals no more than 36 percent of your gross monthly income.
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Tips & Warnings
If you can't secure a personal loan, you can try to apply for a home equity loan. With these loans, you can borrow a certain amount of money depending on how much equity you have in your home.
