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What is Loan Origination?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 10 December 2016
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    Conjecture Corporation
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"Loan origination" is a term that is commonly employed to describe the overall process of assembling and submitting the documents necessary to successfully apply for a loan. The exact process will vary, depending on the type of loan involved and the range of information that the lender requires to be submitted with the loan application. Unless the loan origination is completed in compliance with the conditions set forth by the lender, the application is likely to be rejected or at least delayed until the missing data is provided by the loan applicant.

In order to manage the loan origination process successfully, applicants must supply all data required by the lender. This typically includes filling out all required fields on a loan application, and providing copies of supporting documents that attest to the veracity of the data provided. The range of data will vary, depending on the type of loan under consideration. For example, a payday loan service may require nothing more than a simple application that is accompanied with a copy of a recent bank statement, a recent paycheck stub, and proof of identity and current address. By contrast, the loan origination process for obtaining a mortgage will likely require all these types of support documents, as well as additional documents as required by the lender.

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One of the forms often included as part of the loan origination process is a release form that grants the lender permission to verify all data found on other forms submitted as part of the process. This means that the form provides the lender authorization to verify employment, including salary and wages in jurisdictions that allow employers to release that type of information. In addition, forms that authorize the lender to pull credit reports, talk to personal and business references, and generally perform all the tasks necessary to determine the credit-worthiness of the applicant are also commonly required.

Assuming the applicant successfully passes through the loan origination phase and is granted a loan, the next step is the completion of the loan contract. This document spells out the terms of the loan, including the defined process for making payments on the outstanding balance, the credit bureau reporting process that the lender uses to report the borrower’s handling of the loan, and even the details regarding collateral repossession in the event that a loan default should take place. Once the borrower has read and approved of all these requirements, the loan agreement is signed by both parties and the loan origination process is considered fully complete.

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