A loan is in underwriting when it reaches the final stages of the application and the company is making a decision whether to fund the loan or not. This process can take anywhere from a few hours to a few days depending on the type of loan or product.
For online payday loans, underwriting can be automated or if done manually by an ‘underwriter’ it may only take a few minutes. For more sophisticated products like mortgage or business loans where there is a lot of security and assets at stake, the underwriting process can take longer.
What happens during underwriting?
During underwriting, the lender is looking at the individual’s loan application and taking a number of factors into account which will determine their eligibility for a loan including:
- Form of residence
- Credit score
- Loan amount
- Loan duration
- Additional docs such as pay-slips and bank statements
- History with the lender
- Phone calls with the customer
Credit checks are usually carried out once the loan application has been completed. This gives the lender an idea of how well the customer has repaid other forms of debt in the past and how much they have outstanding.
Finding a customer with a good credit history gives the lender confidence that they will be more likely to repay their loan on time. However, if the lender sees some recent defaults and missed repayment, the individual might be looking for a bad credit lender and this could come with risks of the individual not making payments on time. This process is usually automated and carried out as soon as the individual applies.
Affordability checks are a key part of underwriting which aims to see if the customer can afford the loan or not. Will it put them into greater financial difficulty or stretch them financially?
The lender will be looking at factors such as their income and outgoings and how much they have requested to borrow. Being able to match the amount they have asked to borrow with what they can afford is key to running effective affordability checks.
Who are the underwriters?
Loan companies can have dedicated staff underwriters, or these can be customer service people. It is usually something that is learnt on the job and can come with years of experience. Good underwriters are able to assess risk effectively, aligned with the company’s goals and also identify patterns of behaviour that will get customers to repay on time.
What is the result?
When it comes to loan underwriting, the answer is usually yes (funded) or no (declined).
In addition, underwriters may adjust the terms of the loan, such as changing the amount they have asked to borrow or duration of the loan.
In some cases, the underwriter may request more information such as:
- Phone call to ask additional questions
- Bank statement
- Utility bill
Is there anything else I can do?
If you are a customer and your loan is in underwriting, there is nothing to do and you simply need to wait to hear back from the lender. If you do not hear after several days, of course, you can follow up.
It is not recommended to apply for other loans in the meantime, because this will be seen by the initial lender when running a credit check and this could harm your application.
If the lender requests more information, you can be on hand to provide this. So making yourself available by phone and email is useful and if you are looking for fast funds, maybe having a copy of your payslip or bank statement on standby can be convenient.