Dealing with your Bank

by Shawn O’Grady
4 Minute(s) to read

Dealing with your Bank

With the holiday season about to be upon us you may be thinking about some business lending to help you get through the holiday’s.  If that's the case you need to be prepared to deal with your bank.

Things have changed and it's no longer a case of rocking up and asking for money.

How to improve your chances to get finance from your Bank

  • Prepare a budget which can be submitted to the bank at the time of application.
  • Manage your money well – ensure that you keep within your arranged facilities with the bank. Ensure that you don’t have any unauthorised overdrafts.
  • Ensure you disclose all debt that you have – any undisclosed debt that later comes to light can hurt your chances of getting a loan.
  • Check out your credit rating before the bank does, that way you will know if there are any issues to address before submitting your application.
  • To check your credit score visit www.creditsimple.co.nz

1). Keep it Clean! Yes Clear Credit Checks – If you have any outstanding defaults the bank will usually require these to be paid before they consider your application. Any paid defaults will require an explanation. We recommend that if you have any outstanding defaults, that you pay them before you submit your application to the bank. You can obtain a FREE credit check from Credit Simple. Banks use credit checks as a way of checking on your credit history. Often a person’s past behaviour can be a predictor of future behaviour. Banks do decline loans based on a person’s credit history. What are banks looking for on credit checks?

  • Outstanding Defaults
  • Paid Defaults
  • Number of inquiries for credit
  • Names of Companies the applicant has sought credit with

2). Less is More! The less debt you have the better your chances! The more debt you have the less you will be able to borrow. If you pay off the full balance of your credit card each month – the bank will not allocate a portion of your income to service the credit card. If on the other hand you only pay the minimum or less than the full amount owing, the banks will allocate 2-3% per month of your credit card LIMIT (not the balance) to service the debt.

3). Show some Love! Whilst assessing a loan application, banks will scrutinise your bank account (usually the most recent 3 months bank statements). In particular they are looking at how well (or not) you manage your account. Do you have dishonours, and or unauthorised overdrafts? The better your account is conducted the better your chances! We recommend that if you’re a bit busy to keep a real close eye on those accounts that you get a small overdraft limit – just in case! That way it keeps the bank happy and saves you high interest and dishonour fees!

4). Have some leftovers! Banks will review your income versus your expenses (many will use a living expense formula based on the number of applicants and dependants). Ideally you will have a surplus of income once expenses have been deducted. The bigger the surplus the better!

5). Banks will look at non-essential items like coffees, liquor and dining out etc, questioning if you can really afford to service the loan.

6). Steady as she goes… Banks will look at your employment record – have you been steadily employed, do you change jobs frequently? The more stable your work history the better the banks will like it. If you are self-employed the bank will want to see at least one end of year financial record, but preferably two.

7). Saving for a rainy day! Banks will review your savings history – if you can demonstrate a regular and ongoing savings history, this will help prove that you are able to manage your income and have capacity to save.

8). At the time of writing this article BNZ has announced they are limiting the amount people can borrow to buy a house to six times their income, when they apply for a loan through a broker. It is the first mainstream bank to formally adopt a debt-to-income ratio for home lending.

 

HAVE WE GOT YOU THINKING?

 

Give us a call on (04) 563 6965 or email: dennis@taxman.co.nz or shawn@taxman.co.nz

Keep an eye out for  December’s article!