Even if you haven’t applied for a loan in a while, you can probably remember the process. If you used a non-local lender, you filled out a loan application, signed several authorization forms and mailed off your request. Soon, your loan approval arrived in the mail, along with a loan agreement spelling out the specifics of your loan. Or maybe you bought a car and applied for financing at the dealership. You also filled out one of their applications, signed all of their forms then waited in the salesperson’s office as your application was being reviewed.
During the past decade, the internet has changed almost everything about most consumer loan applications. Improved software, new web apps and faster online forms have transformed how lenders now process almost all types of loans, from small payday and personal loans to automobile and jumbo home mortgage loans.
Lenders have automated to the point that loan approvals can be issued in a matter of minutes. Where has automation made the greatest impact in loan approvals?
Historically, a lender would accept a credit application and the lender’s processing team would contact the three main credit reporting agencies, Equifax, TransUnion and Experian. After verifying the request, the credit reporting companies would mail or fax a copy of the applicant’s credit report to the lender. The lender’s underwriting team would then manually review the credit report and determine whether or not to issue credit.
Now, merchants can receive a credit report via the internet in a matter of seconds. Instead of a manually reviewing the report line by line, many lenders and businesses also rely predominantly on each applicant’s credit score. A credit score is number assigned indicating a likelihood of loan default. The higher the score, the better the credit.
More savvy lenders review the credit report details for specific indicators of the probability that the applicant will repay the loan as promised – using software that can do this in real time. In addition, the credit history is automatically inserted into the application’s digital file with the lender for immediate review.
When a lender evaluates an application it looks at income, assets and credit history among others. In the past, this would mean handing the loan application off to different departments before a loan can be issued. Many of today’s lenders now use automated underwriting systems to review and approve loan applications, as well as determine the loan terms the borrower is eligible to receive. On a practical level, this means that online applicants can get approved financing in a matter of a few minutes (or seconds) depending on the lender.
When loans were approved in the past, it was not uncommon for lenders to ask that the borrower come into the branch to pick up a cashier’s check – or open up an account with the lender so the bank can deposit the funds into that account. Or, a cashiers’ check was mailed to the borrowers’ home. This transfer of funds could take one, two or more days before completion. Today, automation and the ACH (automated clearing house) allow a lender to electronically transfer funds from its account directly to the borrower’s bank account on the very same business day.
The automation of the lending process provides the opportunity for a more seamless transaction between a lender and a new loan borrower. Unfortunately, not all lenders and online loan sites have fully embraced automation and streamlining their loan approval process. So consumers who want faster approvals and services need to look for direct online lenders who have invested in automated approvals and true online forms.
Although automation provides the benefits of faster approvals and fundings for the borrower, lending automation helps the lender as well. When a lender has the ability to quickly verify and approve a loan request in less time, with fewer people the lender, can produce more loans more efficiently. The benefits truly run both ways.