Are you facing a situation where you need to borrow a large sum of money? Perhaps you’re thinking of buying a house or a new car. This is an exciting milestone in your life! Sometimes approaching a bank for a loan can be daunting or intimidating and you find yourself asking, “How do bank loans really work?”
A bank loan is a sum of money that you can borrow from a banking institution or a credit union. The most common bank loan is a mortgage loan, meaning that you’re borrowing a sum of money to purchase a home. However, you can also apply for bank loans that are unsecured personal loans, meaning they don’t require collateral (unlike a mortgage where the collateral is the home itself). These loans can be used for other expenses like home improvement projects, debt consolidation or an emergency expense.
Bank loans often require that the borrower has excellent or good credit (690-850 FICO), several years of credit history and a low debt-to-income ratio (meaning you have low debt compared to the amount of income you make) to take out a loan. Once you obtain a loan, you will be paying that loan back in monthly installments.
If you don’t have good enough credit to qualify for a loan, there are several ways to improve your score. Some ways to accomplish this quickly:
- Start paying your bills on time.
- Keep balances low on credit cards.
- Become an authorized user on a credit line that’s in good standing.
- Dispute any inaccuracies on your credit report that could be bringing your score down.
