Loan Processing: What It Looks Like for Dealers & Lenders
As any loan processor can tell you, loan processing is a relatively complex and thorough process, especially when it comes to processing loans for titled assets such as cars. Whether the borrower is looking for a car loan with a bank or dealer or considering third-party loan alternatives, each type of lender has specific requirements and deadlines to keep up with.
A third-party loan process is similar to the personal loan process at a bank. There are multiple rounds of credit report verification, income verification, appraisals, and reviews. Keep reading for a look at an overview of the steps that go into loan processing and how Web Finance Direct can streamline loan processing for both dealers and lenders.
What Is Loan Processing?
Loan processing refers to the way a loan application is evaluated and reviewed. It’s a standardized procedure that allows a loan processor to determine a borrower’s creditworthiness—that is, whether a borrower is an asset or a risk to the lender.
Among other things, the loan process allows a loan processor to make sure each loan application is accurate and complete before sending it to a loan underwriter. They gather and review all necessary documentation, including credit reports, proof of employment, and income and asset verification.
If any information is missing from the loan application, the loan processor will notify the applicant and contact any relevant third parties, such as appraisers, insurance companies, or employers, to obtain any missing information.
How Does Loan Processing Work?
Loan processing may vary based on employer or state and local laws, as well as if the loan application goes through a bank or credit union versus an indirect loan processor. In general, processing a loan application involves the following steps.
Open and Review the Loan
The first step of loan processing is for a loan processor to open and review the application. They often work with a loan officer to address any initial concerns or questions while processing the loan application. The loan processor will take steps to make sure they understand the application in its entirety before moving forward and address any concerns as soon as possible to keep the process moving smoothly.
Enter Loan Information Into a Computer System
Loan processing can be a very tedious and deadline-sensitive process, so most companies have a system or proprietary software they use for entering information as accurately and quickly as possible. The computer system will set due date reminders for when different steps need to be completed and help keep track of any missing information in the loan application.
Order a Credit Report
When processing a loan application, the borrower’s credit report may already be included in the application file when it’s presented to a loan processor. It’s the loan processor’s job to make sure the credit report is included in the application. If not, they then need to double-check that the application includes consent to perform a credit check and then order a credit report on the borrower from one of the major credit reporting agencies.
Verify Title Information
Obtaining a Verification of Title (VOT) is especially important when processing a loan request for a boat, house, or car loan. This will help determine if there are any liens or claims against the title on the object for which the borrower is obtaining a loan.
Verify the Borrower’s Income Sources
Verifying a borrower’s income, assets, and employment information is perhaps the most important step in processing a loan application, as it ensures the borrower will be able to pay back the loan. The process of verifying employment information varies depending on specific lenders’ requests. Some require written verification from a borrower’s employer, some will accept tax forms or pay stubs, and some may just request verbal confirmation over the phone.
Appraisals, Insurance, and Inspections
After verifying all income and employment information, the loan processor moves on to checking for any necessary proof of insurance and conducting any necessary appraisals and inspections on the object for which the borrower is obtaining a loan.
Review the File
At this point, the loan processor thoroughly reviews the contents of the loan application and checks for any missing or incomplete information. They should contact the loan officer if anything seems vague or unclear, as well as mark any red flags that appear before sending it off to the underwriter.
Deliver the File to the Underwriter
Once the loan processor is confident the loan application contains all the required information and is compiled in the correct format, it’s time to send the completed loan package to the appropriate parties, likely the lender or underwriter.
Loan Processing at Web Finance Direct: For Lenders
Loan processing is a tedious process that can get complicated with different parties waiting on communication from one another. Working with a full F&I services company like Web Finance Direct helps streamline communication with dealers and bridges the gap between a buyer juggling communications with a dealership and a loan officer. Web Finance Direct is a zero-cost consumer loan acquisition engine for lenders, so we’ll send you qualified applicants from our robust dealer network that meet your specific lending criteria.
Our proven and auditable process meets lenders’ specific underwriting requirements every time. Here are the steps of our lender process:
- WFD sends the loan application to you.
- You review and make a decision.
- WFD delivers the completed package to you.
- WFD resolves any funding issues.
- You fund WFD.
Loan Processing at Web Finance Direct: For Dealers
By outsourcing financial services with a full F&I services company like Web Finance Direct, dealers can offer customers the best possible rates in their dealer finance programs. We handle everything from credit applications to customer communication to closing docs. We can also work with your existing F&I department.
With our process for dealers, you won’t have to worry about getting tangled up in lengthy back and forth with lenders. We make the process simple in just a few steps:
- Sell a vehicle at your dealership.
- Submit the purchase details and the customer’s credit application online.
- WFD team of F&I experts verify the credit application and use our proprietary software to select the best matching lenders. WFD reviews the lending options with your customer.
- WFD team prepares all required loan documents.
- Your customer signs the loan documents and takes possession of their new purchase.
- You submit loan documents for funding.
- Get funded quickly and increase your bottom line!
With the Right Partner, Loan Processing is a Breeze
Just like at dealerships and lenders, loan processing is unique to every finance services company. At Web Finance Direct, we make the loan processing process as simple and convenient as possible from both a dealer and a lender perspective. We connect lenders to a qualified network of dealers and help dealers match their customers with the best financing options. Indirect financing gives lenders more available customers with lower risk and takes the hassle of loan processing off of the shoulders of dealers.
Frequently Asked Questions
What is loan processing, and why is it necessary?
Loan processing is a significant part of the lending procedure, where an assigned loan processor reviews the documents related to a loan application like employment history, credit reports, and asset statements.
This process is necessary to confirm the borrower’s creditworthiness and capacity to repay the loan and assess the risk involved for the lender. The results of the loan processing stage play a crucial role in the approval or rejection of a loan application.
What are the key steps involved in the loan processing procedure?
Loan processing involves multiple steps, some of which may occur in different orders or concurrently, depending on each lender’s requirements. The loan processor will verify that all necessary documents have been submitted by the borrower and that the information on them is accurate and complete.
The loan processor will also check the borrower’s credit history, review their job history and stability, and verify their income to determine their overall creditworthiness. This may also involve evaluating an appraisal report for trade-ins or collateral, if relevant, to affirm that such assets are listed at a fair market value. Once all of this information is thoroughly cross-checked, verified, and validated, the loan processor prepares the loan for underwriting, where the lender makes a final decision on the loan approval.
How long does loan processing typically take?
The amount of time that loan processing can take can vary, largely depending on the type of loan and the lender’s requirements. While some loans, particularly those with fewer documents or pre-qualification, might be processed within a few days, others involving more complex paperwork or extensive verification might take several weeks or, in some cases, even longer.
How does technology impact loan processing efficiency and accuracy?
Modern technology continues to significantly improve loan processing techniques through automation and digitalization. Digital loan applications reduce paperwork and manual effort, making the process faster and more accurate by minimizing the potential for human error.
Automation can also streamline the verification process, further enhancing consistency and accuracy when examining loan application details. Some lenders may choose to use tools like data analytics solutions, which can help spot patterns in a borrower’s credit or employment history and enable more data-driven decisions. This can lead to more precise risk assessments and lower exposure to risk for the lender.