There are two main parts to the process of getting a loan. The first is loan origination, and the second is loan servicing. Loan origination includes all the steps from starting the application process up to the approval of the loan. These are as follows:
- Determining the purpose for the loan and the loan amount;
- Shopping for a lender;
- Preparing financial documents such as bank records and legal documents for the loan application;
- Negotiating with lenders about the amount of the loan amounts, terms for repayment, and the interest rate that will be charged;
- Filling out loan application forms;
- Waiting for the lender to approve the application;
- Paying the required loan origination fees.
Loan servicing involves the actions taken after the loan is approved, including transferring the loan funds to the borrower, making monthly payments, and adjusting terms if necessary. It is common today for a lender to make a loan and then sell it to a different company altogether for servicing.
The process may differ depending on the type of loan for which a person is applying; e.g., applying for a car loan differs from applying for a mortgage loan. The term of the loan may also have an effect on the application process.
Applying for some loans can take a lot of time and effort. For example, applying for a mortgage loan might be surprisingly time-consuming to some borrowers who are doing it for the first time.
What Are Some Ways for Me to Increase My Chances of Getting a Loan?
There are several steps a person can take to increase their chances of getting a loan. For example, they might do the following:
- Credit Score: A person should prepare their credit score. This would involve first finding out what one’s credit score is from the credit reporting agencies. A person can get a copy of their credit reports for free under the federal Fair Credit Reporting Act (FCRA). A person may learn that there is negative information in their credit history, e.g., delinquent payments on a past loan. Their credit report may need to be repaired. For example, they want to ensure that their outstanding, unpaid debt is manageable, i.e., a level they can afford and that all payments are up-to-date.
- A person might want to learn more about credit history and credit scores and how to improve their credit score. This can lead to their ability to borrow more at a lower interest rate.
- A person might also want to take steps to address inaccurate information that is in their credit history if they discover any. They may want to use a credit repair organization, but they want to be careful to find one that is legitimate. Not all of them are;
- How Much: A person should determine EXACTLY how much they will need for their purpose. If a person is thinking of applying for way more than they can afford to pay back, they are unlikely to be successful;
- Avoid the Wrong Kind of Credit: Avoid short-term “bad credit” loans, i.e., loans that lenders make to borrowers with low credit scores and bad credit histories or other problems. Payday loans are another kind of credit to avoid at all costs. The interest rates on these loans are ridiculously high, making it difficult to pay them back in full. In the long run, these can lead to more debt and legal problems of a type a person does not want to have;
- Apply When Ready: A person should NOT apply until they are ready to commit to that lender. Applying for a loan can negatively affect a person’s credit score. If a person is applying to multiple lenders, this may reflect negatively on their credit.
It sometimes helps to apply to the same lender that a person has worked with in the past. They usually have the person’s information on record and may offer them some deals if the person is a preferred or valued customer.
If a person is very unsure of how to proceed and has access to a credit union or has an account or two at a bank, they might want to talk to a loan officer at the bank or credit union for help figuring out where to start. For example, if the person needs a car loan to buy a car, a loan officer might be able to give them an idea of how much they should plan to spend without making them apply formally for a loan.
What If I Have a Dispute about a Loan?
Loan disputes may require legal action to resolve fully. Many disputes involve non-payment or defaults by the borrower, although other issues are possible. If borrowers do not make timely loan payments as called for in the loan agreement, they are likely to file a lawsuit against the borrower. They would seek to collect the entire loan amount that is still owed. A person wants to try to avoid this outcome.
Being sued for failure to repay a loan as promised in a loan agreement would negatively affect a person’s credit score, so a person wants to work hard to avoid it. A person should try to use credit responsibly, not taking on more than they can realistically manage and then making sure to pay it back.
If a person is involved in a lawsuit, they should prepare all the loan and financial documents related to the issue.
Lastly, people should always protect themselves from loan fraud and predatory lending. People should never give their personal financial information to people or companies that seem suspicious or disreputable. A person should never give information to someone who calls on the telephone. It is always important for a person to know with whom they are speaking and for what purpose. There is no need to take risks with a person’s financial situation. If something does not seem legitimate, pass on it.
In the end, if a person suffers a significant financial setback, e.g., losing a job, and finds that they cannot keep up with their debt obligations, they may have no choice but to file for bankruptcy. In many bankruptcies, consumers do not pay back some of their debts. Or they may pay them back only in part.
So, credit reporting agencies view bankruptcies very negatively. A bankruptcy can remain on a person’s credit report for 10 years. As long as bankruptcy appears on a person’s credit report, it negatively impacts their credit score, making getting new credit very difficult.
Do I Need a Lawyer for Help Getting a Loan?
Getting a loan can involve lots of work, and the overall process can be complex, especially for higher loan amounts. It may be helpful to hire a credit lawyer if you need help getting a loan. Your attorney may be knowledgeable about the credit market and may be able to help you identify a lender with a good reputation. A lawyer might be able to help you negotiate the most favorable terms for your loan.
If you are having trouble repaying a loan, you may want to consult a lawyer who might negotiate a new payment plan to avoid a lawsuit. Also, your lawyer can represent you in court if you need to file any legal claims due to a loan dispute.
If you are overwhelmed by your debt, a bankruptcy lawyer is the one who can help.