Six tips to make sure everything is up to scratch when you apply for a loan

GUEST OBSERVATION

We have had a client that has had their loan declined in recent times due to the minutest details and strange circumstances.

Let me paint a picture – They are existing clients with one of the majors and they have an investment loan, credit card and savings account all with the same bank. So they are loyal bank clients.

Being very diligent with their money, they put everything they earnt onto their home loan and left a small amount in their savings account to live off. Then when their loan repayment was due, they would redraw money from their home loan account and put it back into their savings account. The bank then direct debited their loan repayment from their savings account.

A small oversight saw their savings account overdrawn by $100 with a direct debit they forgot about.

So now, when they applied for a new loan, we obviously went with that same bank and the $100 overdrawn account sent a red flag to the lender.

Upon further digging, they then assumed that these clients were redrawing funds to simply make their loan repayment. Now this was true, but only because they were putting everything onto their home loan to save on their interest, but the lender did not see it this way.

Even though they had over $80,000 in their redraw.

It does beg the question as to why the bank allowed them to over draw a savings account in the first place? If there is no money in the account, then they shouldn’t be able to access credit. Were they ever approved for this credit? Was there an application? I think not.

There was also no practicality taken into account for this decision; it was a pure black and white policy that they adhered to. As a consequence, they lost that client and will now lose all their business in the near future.

And it’s this kind of stupidity that clients remember for life.

So what can you do to ensure you have everything up to scratch when you apply for a loan? 

1. Make your everyday account an offset account, that way there is no shuffling of money.
   
   
2. Always have a buffer in your working accounts – lenders frown upon overdrawn accounts now with the new credit reporting.
   
   
3. Regular ATM withdrawals from clubs and pubs (if you love a beer or a punt, then get your cash out from the banks ATM’s prior), lenders see everything now. Think twice before you withdraw funds at these type of establishments. Not to mention, it will also save you the $2.50 plus ATM fee.
   
   
4. Credit cards, do not go over your limit, another big no no. Regardless of whether you pay the whole credit card off at the end of the month, as soon as you start going over your limit, it’s a red flag and even the best of applications get declined for this reason alone.
   
   
5. Any bills that are late, even your phone bills, by more than five days etc, these are all recorded on the new credit reporting system. So if you think you are winning by paying late, be prepared for a surprise the next time you apply for a loan. Regardless of what you earn.
   
   
6. If you do move money around a lot to save interest, then set automatic transfers in case you forget.

So, I guess the moral of the story is pay your bills on time, every time.

TODD HUNTER is buyer’s agent, director and location researcher for Sydney-based wHeregroup.

He reached a personal investment portfolio of 50 properties in 2006 and has also started building an SMSF portfolio.