How to Apply for a Loan (and What Is Loan Processing?)

Loan processing is an umbrella term that refers to a series of steps and activities that occur after a borrower applies for a loan. 

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It includes the loan being approved and disbursed and involves steps that are essential to assess the borrower’s reliability and creditworthiness, such as verifying information and ensuring that the loan meets the lender's criteria and regulatory requirements. 

6 Critical Steps of Loan Processing

Applying for a loan and loan processing involves the following steps:

1. Submission of a loan application

The first step in the loan processing journey is that a borrower needs to submit a loan application to a lender. 

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This is done via a physical application form or through an online platform. While loan applications vary between lenders, most include personal information, financial details, and a breakdown of the loan amount requested. 

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During the loan application process, the borrower will be required to provide various documents to support their application. These documents may include (but are not limited to) the following:

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• proof of income
• bank statements
• tax returns
• Identification
• additional documents specific to the loan type (e.g., property documents for a mortgage).

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2. Credit Check

Next, the lender assesses the borrower's creditworthiness by obtaining their credit report and credit score. This information helps the lender determine the risk associated with lending to the applicant and also plays a role in determining the interest rate of the loan since the most creditworthy borrowers often receive the lowest interest rates.

3. Income and Asset Verification

Lenders verify the borrower's income and employment status to ensure they have the financial means to repay the loan. This may involve contacting the borrower's employer or requesting pay stubs and tax returns.

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If applicable, lenders may also verify the borrower's assets, such as savings, investments, or real estate, to assess their financial stability.

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If the lender is applying for a mortgage loan, this is also the step at which the lender will conduct an appraisal of the property being financed. This appraisal determines the value of the property and assesses and verifies its condition.

4. Underwriting

Next, the loan advances to the underwriting stage. During this phase, an underwriter reviews all the information provided by the borrower, the results of the credit check, and the details of the income verification. The underwriting team assesses the overall risk of the loan and makes a decision about approval or denial.

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If the loan is approved, the lender issues an approval letter outlining the loan terms, including the interest rate, loan amount, and repayment schedule. The borrower and lender both sign the agreement, which makes it legally binding. 

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In some cases, a borrower may be required to satisfy specific conditions outlined by the lender before the loan is finalized or approved. These conditions may include providing additional documents or making certain changes to the application.

5. Loan Closing

Once all conditions are met, the loan is ready for closing. During this step, the borrower and lender sign the final loan agreement, and the loan funds are disbursed. This often involves the transfer of funds to the borrower or the relevant service providers, such as a seller in the case of a mortgage.

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After the loan closes, the funds are transferred to the borrower's account or used for the intended purpose, such as purchasing a home or a car.

6. Repayment

Once the loan has closed, the borrower begins making regular payments on the loan according to the terms outlined in the loan agreement. In order to accept these payments, a loan processor must have a loan payment processing platform in order. 

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Payment processing tools for loan providers allow borrowers to make payments easily and securely and streamline the process of receiving payments for lenders. They also integrate seamlessly with a branch’s payment channels and allow customers to make one-time or scheduled payments using a credit or debit card or electronic checks. 

Seamless Chex Makes Loan Processing Simple

Loan processing is a critical part of the lending process, and having the right loan payment processing software helps ensure that loans are granted responsibly and in accordance with applicable laws and regulations. 

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Here at Seamless Chex, we provide robust, competitive payment processing solutions for lending companies. Contact us today to learn more or to find out how our solutions can help you.