How to Borrow Money From a Financial Institution

Borrowing money can provide you with the extra cash you need.

Borrowing money can provide you with the extra cash you need.

If you and your spouse need extra cash, consider obtaining a personal loan from a financial institution. Borrowing money is a straightforward process, as long as you provide all the necessary information and documentation the financial institution requires. Obtaining approval for a loan is usually an easy process if you have good credit, steady income sources and manageable personal debt levels. If your personal finances are less than ideal, it is still possible to borrow money but you many receive a lower loan amount and end up paying a higher interest rate than someone with a better credit profile.

Personal Credit Profile

Before you decide to borrow money, evaluate your income sources and personal debt levels. A financial institution will require you to show proof of income, so it’s important that you show a stable inflow of funds that will allow you to make loan payments according to terms. If you are applying for a mortgage, a bank typically looks at your debt-to-income ratio, or your total debt divided by total income; by normal lending standards, this ratio should not exceed 36 percent of gross income. Your credit score must also fall within a certain range to obtain the best financing terms. If your credit score falls outside the range, you may be denied a loan approval or receive approval for a lower loan amount.

Loan Interest Rates

Familiarize yourself with various financial institution's loan products and their interest rates. Know your credit score and find out ways to improve it so you are eligible for the best financing terms. Your credit profile will ultimately determine the interest rate you are eligible for. If you have a borrowing history with your lender, this may have an effect on the approval of the loan and your interest rate. Typically, the greater your risk for loan default, the higher your interest rate will be.

Loan Application

As you identify financial institution(s) to borrow money from, talk to their loan department and familiarize yourself with the loan application and approval process. Determine which financial institution(s) you wish to borrow money from, request a loan application and fill it out. Your lender will probably request documents such as, W-2s, tax returns and personal financial statements. Gather the applicable documents your lender needs to review and submit them along with your loan application.

Loan Underwriting & Approval

The lender’s underwriting department will review your loan application, personal documents and decide whether to approve the amount you wish to borrow. The loan approval or denial is based on various criteria set by the financial institution, such as debt-to-income ratio, and your personal financial and credit status. Approval can occur immediately or may take longer, depending on whether the lender’s loan approval procedures are completely automated or involve a manual review.


About the Author

Eileen Rojas holds a bachelor's and master's degree in accounting from Florida International University. She has more than 10 years of combined experience in auditing, accounting, financial analysis and business writing.

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