Our Know From a Pro series is back as we dive into consumer loans. Whether a loan is for a home, vehicle, or just for some extra cash on hand, you’ll need to apply and be approved. To get an inside look at the process of a loan and what you can do to increase your chance at being approved, we spoke to Leila Vickers, our Consumer Loan Officer, AVP, who regularly engages with our customers on loans.
Leila has been with Mabrey Bank since August of 2015, working her way up to the role she is in now. In 2021, Leila won an EXCEED Award for her above and beyond work serving Mabrey customers.
Let’s jump right in!
1) Receiving a consumer loan for a home, car or just a personal loan involves an application process for approval. What homework can applicants do before and during the application process that might make it easier to apply and be approved for a loan?
The key to being approved for a loan is all in the preparation, and you can never start too early. Preparing BEFORE you need a loan is the best practice, if possible. Having good banking relationships at your financial institution will help tremendously when you apply for a consumer loan.
For most loans you will need both good credit history and some cash for a down payment. The best thing for your credit history is making your payments ON TIME. If you don’t have credit yet, a type of loan you can start with to build credit without credit history would be a “cash secured loan,” which means using the money you have at your financial institution as collateral for your loan.
When you are ready to apply, here’s what we look for:
- Reliability/Relationship – If you already have a great banking history with your bankers and have proven to be reliable, we are more likely to consider your loan for approval.
- Steady and adequate income
- Steady residence and employment history
- Down payment (if applicable)
- Proof of income such as paystubs, W2s or tax returns
2) An important piece of the loan application process is proof of income. When reviewing an application, what sources of income are you looking for and how can applicants increase their chances of a loan being approved through proof of income?
When it comes to income, we want to not only see that you are making enough to be able to repay the loan you are requesting, but that your income is steady, just like the payments on your loan will need to be.
One great thing about Mabrey Bank is that we do have the ability to work with various income types that other banks or mortgage companies may not. The proof of income needed can vary based on the loan requested. One of the easiest ways for us to verify income is if you have a checking account with us where your direct deposit is credited to. Having that established banking relationship will help your ability to secure the loan.
3) The federal interest rate has been climbing over the last year, as banks base their own rates off that federal rate. How do those changes affect the rate attached to a consumer loan on both a daily basis and over the term of the loan?
The interest rate on your loan depends on when you apply and what your credit score is. Once your rate is determined, there should be a period of time, depending on the loan type, where that rate does not change – called a fixed rate. Most of our consumer loan products keep a fixed rate until you pay it in full. Exceptions to this are home equity lines of credit (HELOC) and adjustable-rate mortgages (ARM). The rates for these loans would be explained to you by a loan officer before you formally apply for that specific loan type.
Personal loans including car, boat, tractor, etc. should have a fixed rate which will be made known to you as soon as we pull your credit report, so there are no surprises. You should know your interest rate and monthly payment before you sign your loan documents, agreeing to those terms.
If you are wanting to buy a home, I would try to research the rate environment and economic predictions from trusted sources.
4) A borrower’s credit score not only impacts the possibility of a loan being approved and the rate of the loan but can also change throughout the course of the loan based on the timing and amount of payments made. How can a credit score go up or down over the course of a loan?
Loans are essentially an agreement between you as the consumer and the bank. By signing your loan documents, you are agreeing to pay exactly how those documents require you to pay. If your monthly payment is $200, due on the 15th of every month, you must pay at least $200 on the 15th of every month. If you follow that agreement, your credit score should improve over time.
The best way to increase your score is to do it subtly. Subtly increased payments early = subtly increased score. For the example above, paying $225 on the 1st of every month can reflect positively on your credit score as early as 6 months into the loan. How much improvement your credit score shows depends on how bad it was to begin with. Consumers with more room for improvement may benefit more than those with already great credit history.
It is important to note that paying off a loan quite early with a large payment can actually hurt your credit score because at that point you are not technically paying as you agreed to in your loan documents.
The best credit histories will have three types of credit:
- A revolving line of credit (like a credit card)
- A shorter-term loan with steady payments (like a 3-5 year car loan)
- A longer-term loan (like a mortgage of 30 years)
You must make your payments ON TIME. Having all types of credit but not making your payments on time would be such a disservice to you and your future. Consider setting up loan payments on auto-draft to ensure timely payment.
5) Mabrey Bank prides itself on the relationships our bankers build with customers, often through generations. How does that mission and culture manifest itself when it comes to consumer loans?
I think the fact that many of those applying for consumer loans are family members or friends of other customers speaks for itself. Around 80% of loan applicants are already customers or are referred from a current customer. We take care of our customers’ needs in many different ways and do our best to make things as easy as possible. They appreciate it so much that they are willing to refer those that are closest to them. Mabrey’s reputation of quality customer service and friendliness has spread through word of mouth, leading to more loans.
At the end of the day, we want our customers to be educated and well-informed about the application process and loan types and terms while setting and managing their expectations. I would say that 9 out of every 10 conversations I have with customers are educating them and running the numbers through various loan scenarios, so they are as comfortable as possible. More knowledge about a loan allows a customer to better help themselves and their families.