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June 1, 2021

Applying for a Loan: Three Things to Know Before You Start

Applying for a loan may be the best thing for your family’s finances. Ask these three questions to find out.

When you’re running the kids from soccer practice to summer camp and back again, it can be hard to strategically think through your finances. As a mom of a busy pre-teen myself, I get it!

Let me walk you through three questions that will help you decide if applying for a loan is the next right thing for your family’s goals.

What do you need the money for?

If you can’t answer this question immediately, then you might not want to apply for a loan yet. Use loans for specific reasons, not for another source of income.

Here are three main reasons to consider a loan:

  1. If you need the money for something that will be worth more money in the future than it’s worth today (like a home)
  2. If the money would allow you to earn more money in the future (for example, a college degree)
  3. If you need the money for a major purchase that will not be worth more money in the future than it is worth today (like a car) but you do not have enough in savings to pay for the purchase

What are all your options?

Always talk with an expert you can trust before applying for a loan. There are lots of options and routes you can take. The best place to learn about your options is your credit union or bank. You already have a relationship established there. They can help you see the bigger picture of your finances.

Here are options to consider with three main types of loans:

  • For a home loan, you can get your loan from either a brokerage firm or your credit union or bank. A brokerage firm has access to rates with several vendors, but I would encourage you to seek guidance from your credit union or bank first. They will be able to answer what the market is currently doing with prices, rates, and closing details.
  • For auto loans, you can either go directly through a dealership to get a loan or your credit union/bank. Before going through a dealership, remember they’re in the business of selling cars, not of getting you the best loan deal. Your credit union or bank should be able to help you pull the value to determine what is a good price for the new car you wish to purchase, what a good trade in price would be for your current auto, and then share with you interest rates. This allows you to take information with you to the dealership and avoid paying more than is necessary.
  • For student loans, start with the financial aid office of the college you plan to attend. If you want additional information after visiting with the college, your credit union or bank should also be able to help. Most credit unions and banks do not offer student loans; however, they can walk you through how student loans will affect your credit.

The number one reason I believe your current credit union or bank is better than other options (like a brokerage firm or dealership) is because they’re there to help you for life, not just with a single transaction.

If you are not a member of a credit union, no problem. We’re still here to help! Credit unions are known for educating and helping people understand their options and providing answers and resources. Give us a call!

How much can you afford to borrow?

Some people think if they can pay the minimum payments on everything they have, then they can afford something new. This isn’t always the case.

The best rule of thumb is to always have an emergency savings account. Emergencies happen. The car could break down, you may need new tires, a hot water heater could bust, your cell phone could fall into the lake. All kinds of “life” can happen that causes us to need money.

You need to make a budget before each month begins to account for every dollar, including your emergency fund. (Check out our step-by-step guide to making a budget here.)

Once you have your budget, evaluate what impact a new loan payment will have on it. Can you still achieve your goals with that new monthly loan payment?

Your home loan will be the largest purchase you ever make, so don’t rush it. A car loan too can have unintended consequences, so it’s important to think through that large decision before you have another loan payment.

Our team here at Kelly Community stands ready to answer your questions about applying for a loan! We want to help you make the best decision for you and your family.


This week’s financial tip comes from our CEO, Michelle Small.

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