Timing Tips: When You Don’t Want to Take Out a Loan

Saturday, October 3, 2015, 6:00 AM | Leave Comment

You know when you want to take out a loan: to buy a house or a car, or to start a business. Loans can be great for jumpstarting a new phase of life and getting you the things you need quickly.

But do you know when you shouldn’t take out a loan? Timing is key when it comes to your finances. You want to be sure you aren’t digging yourself a hole with your new venture, and there are definitely some times when it makes sense to delay getting a loan.

Here are a few examples.

Timing Tips When You Don't Want to Take Out a Loan

  • Starting or Losing a Job

    One time you definitely want to avoid applying for a loan, or getting into any tricky finances, especially a large one like a mortgage, is after you have just started or lost a job.

    Lenders usually like to see a steady job history to ensure you can pay back the loan, and they are very wary of people who have just started a new job.

    If you have lost a job, it will likely make your income lower, which can make it difficult to even qualify financially for a loan. Make sure you can provide some kind of proof of regular employment and income.

  • After a Hit to your Credit

    Your credit score is an important factor in getting a loan, so you want it to be in as good of shape as possible when applying for a loan.

    If you have recently gone through financially hard times that have caused you to fall behind on bills, it may have dinged your credit score.

    A lower credit score can mean a higher interest rate on your loan, which means you pay more in finance charges over the long haul.

    With a mortgage, which can take 30 years to pay back, a few points difference in your credit score can cost you thousands of extra dollars.

    A credit lender, NCC Direct, Inc. says consumers and businesses alike need a full financial history through their credit report to be offered a loan. It’s important to keep yours in good condition through good financial practices.

  • After You’ve Taken Out another Loan

    Lenders are all about risk, and their main concern is whether you will be able to pay back the loan you borrow.

    If you are trying to get a loan at your credit union or bank soon after taking out another loan, it can raise a red flag with underwriters, who may be suspicious of your ability to pay back both loans.

    If you can, spread out your loan applications, at least by a few months. You should even be wary of taking out new credit cards before applying for a loan.

Applying for a loan isn’t rocket science, but there is some science involved with how underwriters determine who should get a loan.

By avoiding applying for a loan in these three situations, you should make the decision much easier for the bank or credit union considering loaning you the money.

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