If you’re planning to apply for a loan, timing is everything. Not only will applying for the loan at the right time ensure that you have the money you need when you need it, you could also end up with a lower interest rate if you wait until you’ve improved your credit score.

When you should apply for a loan depends on the situation and the type of loan you’re applying for. Follow this guide and you’ll know exactly when you need to fill out that loan application.

Avoid Loans When Possible

It’s a good strategy to keep your debt to a minimum, which means you should avoid getting loans for as long as you can or even stay away from them entirely. For example, if you’re planning to get a loan to cover your bills or expand your business, see how long you can go without a loan, first. You may find that you don’t need a loan as quickly as you thought you would. When you do end up applying for a loan, you won’t need as much money, and that reduced loan principal will mean less interest for you to pay.

Apply Early When You Know You Need a Loan

Perhaps you’re in a situation where you know you’re going to need a loan. Perhaps you’re planning to buy a house or you’re going to college and you can’t foot the bill on your own. In these situations, it’s almost always best to complete your application early. If you wait until the last minute, you could miss out on your loan, and then you won’t have much time to find an alternative option.

This is very important with certain types of loans, such as mortgages and Stafford Loans. What are Stafford Loans? They’re a type of student loan backed by the government so students can obtain low interest rates. You need to fill out the Free Application for Federal Student Aid (FAFSA) to be eligible for these types of loans, and if you don’t complete your FAFSA early on, you may end up without the opportunity to get a Stafford Loan.

Although there are plenty of mortgage lenders out there, you should apply to get a preapproval early in your home search process. That way, you already know exactly how much you can afford and you won’t miss out on a home because you didn’t have a mortgage ready to go.

Wait if You’re Planning to Boost Your Credit

The one situation where it’s in your best interest to wait on applying for a loan you need is when you’re trying to improve your credit score before you apply. A higher credit score can save you quite a bit of money over the term of a loan, especially larger loans, such as mortgages.

Check your credit score before you apply for any loans. You can request your credit reports from each of the three credit bureaus free of charge once per year. It’s important to note that there are credit score ranges that most lenders have, which break down as follows:
• 300 – 629: Poor
• 630 – 689: Average
• 690 – 719: Good
• 720 – 850: Excellent

If you’re on the cusp between two ranges, jumping into the higher range will help you get approved for your loan and result in a lower interest rate. Keep these ranges in mind when deciding if it’s worthwhile to spend time improving your credit score. Going from a 700 to a 730 will help you considerably. Going from a 750 to a 780 won’t have as significant an effect.

When it comes to applying for a loan, you can go through a simple process to decide if the time is right. First, consider if you really need it right now. Second, see where your credit is at. If you need it and are fine with your credit score, go ahead and apply.