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Janice France-Pettit: Do your research, prepare before applying for a loan

Posted: December 7, 2012 2:00 a.m.
Updated: December 7, 2012 2:00 a.m.

If you plan on purchasing a home or car, or paying for college, it is probable that at some point you may need to apply for a loan. Taking out a loan is a significant responsibility, so it’s important to follow steps to prepare before applying for a loan, not only to help ensure that a lender will consider loaning money to you, but also to make sure that the loan has a positive impact on your finances. To help ensure you’re prepared, here are some things to consider:

Can you afford to make regular loan payments?

Before applying for a loan, it is important to prepare a budget to determine how much of a loan payment you can afford, in addition to your other financial obligations. If you are planning to take out a car loan or mortgage, consider that, in addition to your loan payment, you will also be responsible for taxes, insurance, repairs and maintenance. Be sure that your budget also includes a savings plan so you can continue making payments even if you experience “rainy days,” such as a medical emergency or job loss.

Will you need a down payment?

If you are buying a home or a car, you will likely need to have cash for a down payment. The amount you will need depends on your lender, but keep in mind that the more money you are able to put toward your down payment, the lower your payments will be.

Check your credit score

When you apply for a loan, lenders want to know that you will be able to repay the loan. Unfavorable credit scores can prevent you from getting a loan with an attractive interest rate or even cause your application to be denied, so before applying, consider taking whatever steps necessary to improve your credit rating. Pay off outstanding credit card balances and other debts. Avoid applying for new credit accounts. Obtain a copy of your credit report and request that errors be corrected by sending a letter to the credit bureau.

Gather financial documents

Depending on the type of loan and lender, you will need to provide certain documents to substantiate your income, assets and finances. Be prepared by gathering items such as current pay stubs and W-2 forms, bank and asset statements, tax returns, and your driver’s license or other form of photo identification when you apply for a loan.

Shop a loan that’s right for you

Interest rates and fees vary widely among lenders, and even a slight rate increase can add thousands of dollars to what you will owe, so it pays to shop around for the lowest rate. Be aware that the longer it takes you to pay off your loan, the more you will pay in interest. Seek out trusted and reputable lenders and ask for a written estimate from each that includes any fees you would be expected to pay.

Understand the terms of the loan

Before you sign on the dotted line, make sure that you fully understand the interest rate you are being offered, the total cost of borrowing, any penalties or charges and potential changes in rates. If you are considering a loan with a variable interest rate, make sure you understand what conditions will affect a change in your rate, and the amount by which your rate may fluctuate.

The column is co-authored by Janice France-Pettit and Victor Villegas. France-Pettit is a senior vice president and regional manager for Union Bank, overseeing the Simi Valley, San Fernando Valley and Antelope Valley regions. Her column reflects her own opinion and not necessarily that of The Signal. This article is intended to provide general information about preparing to apply for a loan and is not considered financial or tax advice from Union Bank. Please consult your financial or tax advisor. Visit for more information.


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