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What is Underwriting?
Underwriting is the name of the application review process for loan approval. The decision is taken by lenders or finance providers in order to decide if the borrower is an appropriate candidate to receive the loan – this can either be done in-house or by using software.
The ‘underwriting’ is the checks run by an individual or a team, involving many factors, which ultimately determine if the customers are suited to the loan and if they can meet the repayment plan.
How Long Does Underwriting Take?
Loans are typically in the underwriting process for just a few hours before the lender makes their decision. However, it can depend on how many checks are needed or if any further checks must be carried out before a decision is made.
When applying for a loan, one should note that applications made over a weekend or holiday could take longer to process, as it will rely on information from the customer’s bank.
Suppose the underwriting process goes beyond 30 days. In that case, it is likely that the applicant needs to re-apply in order to get the most up-to-date information about credit checks and affordability checks for the application.
What Information Does an Applicant Need to Provide?
When making the initial application, applicants must provide certain information to the lender either for a loan or a credit card.
These typically include age, employment status, monthly income, if they are a homeowner if they are claiming benefits, and their bank details.
Lenders have their specific criteria, but across the board, there is usually a minimum age of 18 years old and often a minimum income per month.
In the next stage of the application, a loan agreement with the loan terms is made between the borrower and the lender. These agreements will include repayment plans and dates.
What Checks do Underwriters Carry Out?
The checks carried out by underwriters are to determine if the applicants meet the specific lending criteria, that the person is who they claim to be, and that they are financially able to meet the terms of the lending agreement.
These processes rely on automated credit technology so that thousands of applications can be processed daily.
Personal Details: The automated checks look at the personal details to verify that the person applying is who they say they are. This will look at addresses and bank details to confirm that everything matches.
Credit Checks: Relevant credit checks are crucial when determining whether or not to lend to a specific applicant. Usually, lenders will have a minimum credit rating as part of their lending criteria to work with a credit reference agency to obtain the credit information of each applicant.
What Happens in the Manual Underwriting Part of the Process?
The manual part of underwriting involves confirming certain details over the phone. For loans, it relies on making sure that both parties understand their role and their requirements during the loan term.
It is possible in this stage to request additional documents in order to confirm things like employment details, bank account information or income.
The Final Decision
In the final stage of the underwriting process, a decision is made determining whether or not the candidate can receive the loan. This decision will depend on a thorough assessment of all of the information received up until this point.
The underwriter will need to align the borrower’s needs and the type of customer that the lender is looking to fund. Financial histories and behaviours will play an essential role in this decision and demographic details such as profession, age and residential status.
If approved, the application will be sent to funding and, in most cases, the money can be transferred to the customer’s debit account within 48 hours.
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