How to Get a Loan From the Bank

Loans are financial products that can allow you to make a large purchase and pay for it over time. Banks and credit unions are both popular places to get loans for a number of needs including personal loans, car loans and mortgages.

Knowing what type of bank loan will meet your needs is the first step in figuring out how to apply and get approved.

Find the right type of bank loan for your needs

Some of the most common types of bank loans available to Canadians include:

Mortgages: If you need to borrow money to buy a house or other property, you’ll have to search for a mortgage. Mortgage terms tend to be longer than other types of loans, with amortization periods from 10 to 25 years.

Car Loans: When purchasing a vehicle, you may want to look for car loans from banks and credit unions with flexible payment options. But, as with other loans, the entire amount plus interest is expected to be paid back in a set period on a predetermined payment schedule.

Personal Loans: As the name suggests, these loans can be used for just about any personal needs, including home renovations, debt consolidation, or even a big expense like a wedding. Personal loans usually have terms between six and 60 months of regular payments to pay back the borrowed fixed sum of money with interest.

Business Loans: A business loan works similarly to a personal loan except it’s designed to finance business-related costs and expenses. If you start a small business, you may need to seek a business loan.

Lines of Credit: A line of credit isn’t exactly a loan but it’s a borrowing option offered by most financial institutions for personal use, businesses and students. Similar to a credit card, if approved, you’re given a limit that you can borrow against as needed. You pay interest on the amount that you borrow and there is no deadline to pay back the funds.

Note that loans can be either secured or unsecured. Secured loans tend to have lower interest rates because they’re tied to a piece of collateral, such as a house or a car. Unsecured loans have higher interest rates because they aren’t tied to collateral and are seen as riskier to the lender.

Take your time to choose the right type of bank loan for you based on the purpose, the amount you need to borrow and the interest rate you’re likely to be charged, among other considerations.

How to get a loan from a bank or credit union

After deciding on the kind of loan, check to see if you meet all the eligibility criteria to apply for the loan, if your credit report is in good standing and if you have the required documents to support your loan application.

Many people will choose to borrow money from their regular bank, which often means less paperwork. However, it can be worth your time to shop around to see if other banks or financial institutions are offering lower interest rates. You may not even need to open a new bank account with them.

Prepare for a credit check

One of the main qualifying factors for any bank loan is an acceptable credit score. It may vary depending on the lender, but generally banks prefer if the applicants have a good credit score, which is defined by Equifax as being 670 to 739.

Your credit score is determined by several factors that include how much credit you use, the type of credit you have and if you make your payments on time. That’s why banks assess your credit score and weigh other factors, such as income and credit history, to decide if you’re creditworthy.

You can also prepare for a credit check ahead of time. Use your bank’s mobile app or one of credit bureaus’ websites such as — Equifax and TransUnion to check your credit score and review your report.

Organize the bank loan documents

Once you know you’re prepared for a credit check — it’s time to make sure you have your personal information and supporting documents ready to start the loan application process.

A general checklist to apply for a bank loan includes proof of:

Note that documents may vary depending on lenders and types of loans.

Submit the loan application

If you qualify and have the necessary documents, you should be able to apply for a loan at most financial institutions online or in person.

To send your online application, you may have to create a new profile if you’re not already a customer with a financial institution. For in-person applications, you may need to call the financial institution to book an appointment, and bring in the required documents with you when you visit the branch.

The process of applying for a loan may change depending on the lender, number of applicants, and the type of loan. A mortgage, for example, has an extensive application process than a personal loan.

However, applying for any type of bank loan will often result in a hard credit inquiry, which helps the lender determine your ability to pay back the loan. After the bank has completed its review, you’ll know the status of your application. While some banks have instant approvals, others may take a few days to get back to you.

What happens if the bank does not approve your loan?

If you are denied a loan from a bank or a credit union, your first step should be to ask the underwriter what caused the denial. They may or may not share the exact reason with you.

Common reasons for denial include a low credit score, insufficient income, excess existing debt or not enough credit history. Taking steps to strengthen your credit score, improving your debt-to-income ratio or paying down debt could give you a better chance of getting approved in the future.

However, in the meantime if you still need financing you might consider the following: