Preparing to Borrow

Thinking about taking out a student loan to further your education? Or maybe you’re getting ready to buy your first car. Borrowing money is a responsibility most of us take on at some point in our lives. Mortgages, auto loans and college loans enable us to afford things that are beyond our current financial reach and also allow us to build credit. Credit cards provide convenience in our daily lives that many find essential.

Before applying for a loan or a credit card, here are some points to consider:

• Why are you borrowing? Borrowing for items that provide long-term and lasting value should come before borrowing for things that provide only brief or limited enjoyment.
• Any money you borrow must be repaid along with interest. Be sure you can afford the payments that the borrowing will require. Also, spend some time to find the loan with an interest rate and terms that best fits your situation.

Before sitting down to fill out a loan application or arranging a meeting with a loan or mortgage officer, here are some items you may want to have handy:

• Your credit report. Most lenders will automatically order a credit report. You should know what it contains beforehand. You can receive a free credit report once a year from www.annualcreditreport.com.
• Otherwise, you can order your credit report from the three large credit reporting agencies by calling them:
• Experian – 888-397-3742
• TransUnion – 800-888-4213
• Equifax – 800-997-2493
• Proof of income. Depending on the type of loan, you may need to provide a copy of a recent paycheck stub or a W-2 from the prior year.
• Tax return. If you are applying for a mortgage or a large personal loan, you will probably need to supply copies of at least one federal tax return.
• Personal financial statement. For mortgages and other large loans, lenders may require that you supply a financial statement listing all your assets and liabilities. It is also a good idea to prepare a personal financial statement annually as part of managing your finances.

Lenders are loaning you money that they want repaid along with interest. This is their business and they want to make sure that you will be able to live up to your repayment responsibilities. Along with the items mentioned above, they may be looking at other aspects of your finances in order to approve your loan.

• Stable employment. Having a steady job can help give lenders confidence that you will have ongoing income to repay your loan. If you have a history of several job changes, it may raise a yellow flag, so be sure you can explain them. For example, if you have frequently changed jobs for better opportunities, be sure to mention it.
• Stable residence. Lenders like to see at least one year of residence at the same place.
• Responsible handling of other debts. Having a solid history of timely and regular payments on other borrowing also helps give lenders confidence that you will be able to handle this debt in the same manner.

The decision to borrow money or to apply for a loan is serious and you should thoroughly understand your side of the transaction. Spending a little time to think about borrowing and being properly prepared will make the process easier and may improve your chances of getting the loan approved and being able to get more favorable terms.

These views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of Provident Bank. Please consider consulting a professional before making any financial decision.