What happens when you apply for a loan?

What happens when you


apply for a loan?

Last week your mechanic advised you not to spend any more money on the faithful old car

that has carried you over many miles of highway. The time has come to shop around for a new

one. But cars were a lot cheaper when you last bought one. This time you’ll have to take out

a big loan.

You don’t necessarily have to borrow from the bank where you have an account. You should

shop around for a lender that offers the best deal, including the lowest interest rate. Sometimes

car companies offer low-interest, or even no-interest loans. And don’t forget the internet. You

can research a wealth of online resources from the comfort of your home or office.

Your first step is to figure out how much you can afford to borrow. You will not know if you

can afford the new car—

or if a lender will let you borrow the amount want—until after you

complete a loan application. In addition to routine personal information such as your name,

address, telephone number, and Social Security number, a loan application also asks for information

on how much money you earn, how long you have worked at your current job, and

how much money you already owe on credit card bills and other debts.

The next step is for the lender to evaluate your application and decide if you are a “good risk.”

Before they lend you money, lenders want to be as certain as possible that you will be able

to pay them back. Do you earn enough money to keep up with your loan payments? Do you

have a history of paying your debts on time? To answer these questions, lenders rely heavily

on credit bureaus and credit reports. There are approximately 1200 local and regional credit

bureaus in the United States. All are private companies (not government agencies), and most

are linked by computer to three nationwide credit bureaus. They provide much of the information

that lenders need to evaluate loan applications.

20