How to Get a Bank Loan
Your step-by-step guide for getting a personal loan from the bank.
When my mother was diagnosed with breast cancer, our lives were filled with questions. How serious? Can it be treated? What will treatment entail? What will it cost?
At the time, my mother had just come back from a mission trip in Kenya. She was between jobs, and health insurance was not an option. We didn’t know where to turn or who to speak with. Normally, my father would have had the answers, but he had passed away a year prior.
That was when we decided to consider the possibility of a personal loan. But where to start? What did we need to qualify? Was it better to go with a bank or to appeal to a credit union?
Thankfully, we were able to make our way through all this uncertainty, and I’d like to share what I learned. If you’ve ever wondered how to get a bank loan, consider the following steps.
5 Steps for Getting a Bank Loan
- Determine what this bank loan will cover
- Check and improve your credit score
- Explore all lending opportunities besides banks
- Put together a list of questions/concerns
- Focus and adjust for your debt-to-income ratio
Step 1: Determine what this bank loan will cover
In our case, we needed a personal loan that would help cover the cost of my mother’s treatments. Once we spoke with the doctor and their team of specialists, we had a semi-conclusive scope of treatment. From there, it was a matter of determining a budget we could work within.
Between factoring in my father’s life insurance policy and what I could contribute from my job, it was quite the process. However, it paid off in the long run when we discovered we didn’t need as large of a loan as we thought.
Therefore, the first step of getting a bank loan is to determine what it will cover. Whether you need a personal loan for medical costs or emergency travel, take stock of your financial needs.
I literally grabbed a college-ruled notebook and a mechanical pencil and made a list. Once we knew radiation therapy was in the cards, we factored in the costs:
- Prescriptions (generic brands)
- Lab work
The list went on…
By the time I was finished, I had a full page of possible costs to consider. Some of these costs were estimates that turned out to be higher or lower.
Making a list to help determine what a personal loan will cover is good for more than just helping you pick the best bank loans. It can put the size of these expenses into perspective. What you thought was an insurmountable investment might not be so bad.
Step 2: Check and improve your credit score
While it’s often wise to check your credit score regularly and maintain it, it’s especially true when it comes to bank loans. You might wonder what your credit score has to do with getting a bank loan. At the time, I’m a little embarrassed to admit that I really didn’t know either. I now know better.
Think of your credit score as your reputation when it comes to responsible credit use. The higher it is, the more trustworthy you are with creditors and card providers. When you have a higher credit score, banks feel like you are less of a risk.
As a result, having a good credit score can only positively impact your bank loan prospects.
Because my mother had such a high credit score, it was not difficult to get approved for a personal loan. We were also able to opt for some of the cheapest bank loans (in terms of interest rates) because her score was so high.
If you’re reading this and your credit score isn’t so great, there are lots of things you can do to change that. My parents drilled three very important tips into my brain that have served me well in the long-term:
- Pay on time (auto-payments can help here)
- Don’t charge anything you don’t have the money for (helped me prevent debt from accruing)
- Check! Check! Check! (because of my parents, I always check my credit score once a week)
It can take a while to achieve healthy credit, so there’s no time like the present to check and improve your credit score.
Step 3: Explore all lending opportunities besides banks
After we figured out what the treatment costs would entail (to the best of our abilities), it was time to find a lender. I had already done some research and found three options: banks, credit unions, and online lenders.
We were wary of the potential for predatory payday loans, so we avoided online lenders. That isn’t to suggest that all online lenders are bad, however.
Ultimately, we decided on getting a bank loan because we qualified for lower rates. Plus, we wanted brick-and-mortar institutions we could easily contact, and bank loans were the most traditional route.
When you’re trying to figure out how to get a bank loan, be sure and explore all lending opportunities. That’s what we did, and we even learned of a few tempting offers from local credit unions. In the end, however, we did not go with a credit union despite the lower rates and easy approval.
Your experience, however, may vary so definitely look at credit unions as well as online lenders when looking into bank loans.
Step 4: Put together a list of questions/concerns
Even after we figured out what the bank loan would cover and decided on a lender, we still had questions!
“How big of a loan did we qualify for?”
“Were we eligible for the cheapest bank loans?”
“Would we have access to the best bank loans in our area?”
Some of these questions were best reserved for a face-to-face meeting with the lender. So, I broke out the pen and paper once again and jotted down a list of questions and concerns. And this is precisely what I recommend anyone do if you’re unsure about signing off on a bank loan.
It doesn’t have to be long or complicated. Really, it’s just any questions you might have. And, remember that no one expects you to be a financial expert. There are no dumb questions so be sure to ask a lot.
On my list, I had questions like:
- How much do I qualify for? (size of the personal loan)
- Is this the best possible interest rate?
- How many personal loans have you set up?
- Are there any finder’s fees or originator’s fees?
The more questions you ask, the better you’ll feel about signing off on any bank loans. It’s also one of the best ways to avoid any costly misunderstandings about your policy.
At the time, I was in my mid-20s and felt a little embarrassed that I didn’t know the answers to some of these. However, in the end, I’m glad I asked since it helped clear up a lot of confusion.
Step 5: Focus and adjust for your debt-to-income ratio
How much money are you bringing in? Are you making enough to pay off your debts? That’s basically what this final step boils down to, and it’s an important one.
Before you go to your lender with your questions and your proposal, you’ll want to determine your debt-to-income ratio. In a lot of ways, this is like building a budget. Take stock of all your outstanding debt including the house, car payments, credit card debt, etc.
Then look at your income and determine how it will impact this existing debt combined with a personal loan. In my parents’ case, they had bought their house outright which eliminated that debt for my mother. While she still had student loans, we could figure out how to address that debt to make room for a personal loan.
Once we had this part of the equation solved, we had everything we need to apply for a bank loan confidently.
Getting the best bank loans
In the end, we were able to get a personal loan with decent interest. We could afford my mother’s cancer treatments and have steadily been paying them off.
Hopefully, your reasons for needing a bank loan won’t be as serious as ours. Whatever the case, just remember these five steps. And if you need further financial assistance, I’ve put together a financial guide for cancer treatments. A colleague of mine has also published an informative piece on determining if a personal loan is right for you.