Getting a loan can be quite a tricky task. Seemingly small mistakes may get you trapped in debt, make a permanent record on your credit file and/or lead to rejections on new mortgages.
Here are a few common mistakes that new borrowers often make, along with ways to avoid them for a smooth, seamless loan application process.
Why does your credit history matter before you apply?
Your credit score shapes whether a lender says yes and on what terms. A default or two will not always mean rejection, but it can change the rate, the fees and the conditions you are offered. Check your file before you apply, not after a lender does.
Your credit score can make or break your loan approval. While a default or two may not result in rejection, it can still affect the rates, fees and conditions that the lender will offer. Before applying for finance, it’s a good idea to check your credit report and ‘clean’ up all outstanding bills to get the most ideal offer.
Should you borrow as much as the lender offers?
Not automatically. A lender’s maximum is what their assessment allows, not what your budget can carry. Borrowing more than you need can strain repayments and leave no room if rates or circumstances move. Work out the amount you actually need first, then see whether it fits.
Your lender may be willing to provide a considerable amount, but this doesn’t mean you should borrow more than you need. Getting a bigger loan than you can afford may compromise your ability to pay it back and put a strain on your budget. However, don’t aim too low either – if you underestimate the amount you require, you may need to return to make another application and/or refinance. Plan your loan in detail, including your strata fees, inspection fees and consider your repayment capacity over the period.
Why read the fine print when the rate looks good?
Because the headline rate is not the whole cost. A loan with the lowest advertised interest can still work out dearer once fees and conditions are counted, and the biggest amount on offer is not always the right structure. Read what sits behind the number before you commit.
When choosing a loan, it can be tempting to go for the largest amount or the smallest interest rate you can get – but these features may not always be the best fit for your situation. Low-interest loans may even turn out to be more expensive than the alternatives if you factor in the extra charges, fees and the Lenders Mortgage Insurance (LMI). Think about your financial goals and pinpoint the loan features and structures that will help you achieve them. With a trusted mortgage broker by your side, we can help you narrow down your options when shopping around for a loan.
Does applying to several lenders hurt your chances?
It can. Every application is recorded on your credit file, and a run of them in a short period makes you look like a higher risk. Lenders may respond with tighter terms or a refusal. Narrow the field before you apply rather than applying to find out.
More isn’t always better. When you apply for a loan, the request gets recorded on your credit file – and the more requests there are, the more likely you are to be marked as a high-risk borrower. Lenders may in turn take precautions by giving you higher interest rates or refusing to grant your application. Our team can offer their industry knowledge and guide you through the application process.
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New to borrowing? Avoid making mistakes and contact our team today.