The internet provides a wealth of information with just a few keystrokes. That’s evident simply by your reading of this blog. Fewer people today stop to open up a book or a newspaper when they want information quickly about something that intrigues them. Instead, they just go to a favorite news page.
For example, what’s the weather like? Historically, getting weather information might have included a newspaper or a television newscast at the end of the day. But now you can get the current weather report and forecast by just simply typing “weather” into a search engine.
While users may marvel at the wealth of information available with a click of a mouse, businesses have also tapped into that information flow and speed to improve the way businesses work. Companies have turned to the web not just to connect with more customers, but also to operate faster and more efficiently.
The personal financial sector is evidence of how the internet has transformed the way lenders operate.
When a personal loan provider or consumer financing lender evaluates a loan application, there are typically three fundamental pieces of information that need to be verified:
- Credit
- Employment
- Income
Just a decade ago, it would take days for lenders to get all the information necessary to make an underwriting decision.
A person’s credit history is stored with consumer credit agencies, and the three most prominent are Equifax, TransUnion, and Experian. Prior to the web, a person would complete a loan application by hand and sign an authorization form allowing the lender to retrieve copies of their credit histories from one, two or all three agencies. The lender would then review the application and request a copy of the applicant’s credit report. This request was typically made by fax, and the credit report would appear within one or two business days.
Many lenders would also verify employment by reviewing a copy of a current paycheck stub and requesting job history and income information directly from the employer, with a form called the Verification of Employment (VOE). Again, this would normally take a few days to get the information from the employer before a lender could issue a decision.
If the lender approved the loan application, the borrower would then receive a check from the lender either by mail or by picking up a check at the lender’s location.
All of this meant that borrowers would most likely use a local lender they could meet face to face – and not rely on the mail service to exchange information. Even with local lenders, however, the process of a simple consumer loan would still take anywhere from a few days to several weeks to complete the approval. If the lender’s underwriting operations were out of town (or out of state), it could take even longer.
The internet has changed all of that.
Today, a borrower can apply for a loan online either with a direct online lender or an online loan broker. The borrower can complete the loan application and sign the various loan disclosures, agreements and other required forms electronically.
An electronic loan application will then automatically pull a credit report. Credit reports are usually provided within seconds after the lender makes a request for credit. Upon receipt of credit data, the applicant’s credit history and scores are automatically inserted into the applicant’s online file and analyzed, so the lender can make an immediate decision.
In addition, lenders will verify employment with a paystub, W2 and phone call to the employer. Employment and identification services can also verify employment and income information electronically for lenders.
And when a personal loan is approved, there are often no cashier’s checks to deposit – unless that is the borrower’s preference. Borrowers can provide their bank account information to the lender, and the lender can transfer the funds directly to the borrower’s own account for immediate use.
Some loans, especially more complicated ones, do take longer. But for the majority of borrowers who use online lenders, the Internet means faster approvals, closings and fundings than traditional personal loans.
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