Demystifying Loans: Understanding the Application Process

While you can find lenders at practically every corner, it is common to not have a personal experience with them until your early adulthood. For some, their first lending product comes in the form of student loans, while others enjoy these rewards in the form of personal loans.

But no matter the type of loan that you apply for, you may want to know how the application process works in the first place. This gives you an understanding of behind-the-scenes tasks and saves you from losing sleep over what your lender might be doing with your loan application.

Here’s our quick overview of the loan application process.

Which Steps Do Borrowers Have to Go Through?

Before you learn about the backstage activities of loan processing, it is important to familiarize yourself with what you need to do first. Aside from determining how your submitted information is used by lenders, this helps you with tips for quick loan approval.

Reaching Out to a Lender

Your loan application process starts by reaching out to a lender. Start by filling out a contact form at a lender’s website, calling their helpline, or emailing them with your interest. This typically leads you to have a conversation with a representative or a loan offer from the lender’s institution. This helps you figure out what you need to submit with your loan application.

Gathering Documents

After you’ve spoken with a lender, you should know what documents and qualifications you need to complete your loan application. You may also need to perform a soft credit check to determine where you stand in terms of the lender’s required credit score. Once you submit your application, the credit score inquiry performed by your lender may end up lowering your score. This gives you an idea of your initial eligibility for your loan product.

Submitting Application

Whether you’re applying for non-QM loans or traditional auto loans, you have to submit a loan application. After you submit this application in person or online, you can take a sigh of relief. After this, the ball goes into the lender’s court. But you can still set reminders in your to-do app to follow up with the lender.

Which Steps Do Lenders Perform?

Whether you’re submitting your application for a business loan or a personal loan, lenders carefully complete steps to determine whether or not they’ll approve your request. Depending on the type of loan, this process can be completed in a few days or a few weeks.

 

Loan Underwriting

The process of “underwriting” refers to the verification process your lender performs to confirm the information you’ve submitted. During this process, someone from your lender’s institution may call you to ask for additional information.

Decision Making

From approving instant cash loans without documents to rejecting home loans after extensive verifications, lenders need to give conclusive answers to potential borrowers. Once again, the type of loan that you ask for heavily influences the duration of this decision-making process. Typically, you may expect to hear from your lender a few days after submitting your application. But if weeks pass with no updates or the outlined timeframe runs out, you can reach out to your loan officer.

Closing

If your loan is approved, you move on to the closing process. This phase is segmented into multiple parts that are also known as “pre-closing” and “post-closing” by some. The first phase typically involves your lender’s staff reaching out to you and outlining the terms of your loan agreement. Then you sign the necessary documents, keeping both you and the loaner legally protected.

The Overall Process May Vary Across Loan Types, But the Basic Steps Remain Essentially the Same

While the specific steps of loan application approval may vary according to loan type, the overall process is largely the same across the board. As a result, knowing more about this topic can help you apply for loans with more confidence.