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7 Stages in Loan Origination process

7 Stages in Loan Origination process

The First phase of Lending/Financial services is called as Loan Origination process. The main important & essential stage in complete Loan servicing. The Finance Industry is now moving its focus on engagement & satisfaction of the Customer with the elements of design & delivery that fulfil the expectations of the customers first.

For almost every lender the definition of the expression Loan origination is different – where it starts, the different phases within the process, and where it ends. Each type of loan will have a different approval procedure that can be manual or automatic. Lenders have their “secret sauce” when it comes to Loan Origination that they don’t want to share as Loan origination is what makes Companies stand out from their competition. Loan Origination System is responsible for controlling everything from pre-qualification to the approval of funding the loan.

Below are the phases that are important components of the Loan Origination procedure : 1) Pre-Qualification Process :

This is the first important step in the Loan origination process. At this stage, the potential receiver will receive a list of items they need to submit to the lender to get a loan.

This may involve

  • ID Proof / Address proof: Voter ID, AADHAR card, PAN CARD
  • Current Employment Information involves Salary slip
  • Credit Score
  • Bank statement & Previous Loan Statement

Once all this information is submitted to the lending company, Lender checks all the necessary documents, and a pre-approval is made, allowing the receiver to continue in the process to get a loan.

2) Loan Application :

This is the second phase of the loan origination process. In this stage, the receiver needs to complete the loan application. Sometimes this application can be paper-based, but today lenders are moving towards an electronic version so that makes this stage Paperless. New technologies will allow filling the application online through website & mobile app, and collected data can be customized to a particular loan product.

3) Application Processing :

At this phase, the application will be received by the department of credit and the first step is complete by the department is to check it for accuracy, genuine & Completeness. If all the necessary fields are not completed, the application will become back to the borrower or the credit analyst and they will reach out to the borrower to obtain the missing required information.

4) Underwriting Process :

When an application is totally done, the process of underwriting begins. Now Lender examines the application taking different components into account: credit score, risk scores, and many lenders produce their own unique norms for scoring that can be unique to their business or industry. Nowadays, with the help of a rule engine & API integrations with Credit scoring engines (CIBIL, EXPERIAN, etc. ) in LOS this process is fully automated. In a rule engine, the lenders can load underwriting guidelines specific to products.

5) Credit Decision :

Depending on the results from the process of underwriting, the application will be approved, rejected, or sent back to the originator for extra required information. If there is no match of certain criteria according to the rule engine set in the system, there can be an automatic change in the parameters, such as decreased loan amount or different interest rates.

6) Quality Check :

Since lending is highly managed, the quality check phase of the loan origination process is very important and critical to lenders. The application will be sent to the quality control team, which analyzes the critical variables against internal and external rules and regulations. Before it goes to funding this is the last look at the application.

7) Loan Funding :

Most of the loans fund shortly after all the necessary loan documents are signed. Second mortgage loans, Business loans, loans against property, and lines of credit may need additional time for legal and compliance reasons. LOS can track funding and make sure that all necessary documents are performed before or together with funding.

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