How Does the Loan Approval Process Work? Steps Involved and More Explained

Lenders consider many different things when deciding whether they want to lend someone money, so it helps to understand how the loan process works.

Sometimes, the process moves quickly with minimal information required — like when you apply for a credit card and get an instant decision. In other situations, such as applying for a mortgage, you'll need to provide lots of documentation, including pay stubs, bank statements and tax returns.

Here's an example of how the loan approval process can work.

The Steps of the Loan Approval Process

The loan approval process can vary depending on the type of credit you're asking for, the amount you want to borrow and the lender's policies. But when you apply for a loan, the process might look something like this.

1. Loan preapproval

Loan preapproval is a preliminary step where you ask the lender if it will likely lend to you and on what terms. You aren't formally applying for credit yet, and lenders can often preapprove you with a soft credit check that won't hurt your credit scores.¹

When you get preapproved for a loan, you provide some basic financial information, but the lender doesn't usually ask for many documents to confirm the details. You can find out if you're likely to be approved and at what rate—but your offer could change if your financial situation changes or the lender has trouble verifying your information.¹

Loan preapproval isn't always necessary or required, and some lenders don't even offer it. But it can be helpful if you're shopping for offers from different lenders or trying to see the type of financing you might qualify for.

2. Applying for the loan

When you're ready to apply for credit, you'll need to complete and submit an application. Most lenders allow you to apply online, but some will ask you to visit a local branch.

The credit application process and requirements can vary, depending on what kind of credit you are trying to get. If you're applying for a credit card, for example, you may only need to fill out a simple online form with your Social Security number, contact details, income and monthly housing costs. If you're applying for a mortgage, the credit application will typically be much more in-depth and may require you to submit bank statements, tax returns and many other documents.²

3. Lender reviews your application

The application review and verification process is also called underwriting.² Usually, it involves the lender looking at various financial factors, including:

• Your assets
• Your credit score
• Your credit report
• Your income and debt
• Your employment history
• The amount you want to borrow
• How you plan to use the money you borrow

Some lenders may weigh certain factors more than others. And the type of loan and what you plan to buy can also affect a decision. But specifics aside, the purpose of this process is for the lender to assess the likelihood that you'll repay the loan as promised.

4. Lender notifies you of loan approval or denial

Once the lender has completed its assessment, it will approve or deny your loan. The lender will also decide what interest rates and fees to offer you and might present you with several loan offers.

If you're considered high-risk, you may be denied or offered a loan with a very high interest rate. If you have good credit and a low debt-to-income ratio, the lender may approve you and offer you its most competitive rates.

Even if you're approved, you aren't required to take the loan. You can still compare your loan offers to see which lender offers you the best rates and terms.

How to Apply for a CareCredit Credit Card

While the CareCredit credit card isn't a loan, the application process is similar in many ways. If you're hoping to be approved for the CareCredit card, you'll want to practice the same principles as getting approved for a loan or any other line of credit, including improving your credit score and managing your existing debt.

For more information about how CareCredit works, visit our overview page. If you're ready to apply, you can check if you prequalify right now.

Managing Health and Wellness Costs With the CareCredit Credit Card

If you are looking for an option to help manage your health and wellness costs, consider financing with the CareCredit credit card. The CareCredit credit card can help you pay for the care you want and need and make payments easy to manage.* Use our Acceptance Locator to find a provider near you that accepts CareCredit. Continue your wellness journey by downloading the CareCredit Mobile App to manage your account, find a provider on the go and easily access the Well U blog for more great articles, podcasts and videos.

Your CareCredit credit card can be used in so many ways within the CareCredit network including vision, dentistry, cosmetic, pet care, hearing, health systems, dermatology, pharmacy purchases and spa treatments. How will you invest in your health and wellness next?

Author Bio

Kristin Driver is a Digital Writer with CareCredit. She specializes in writing about health care, finances and pet care. Her work has been published by Cedars-Sinai, UCLA Health, Stanford Health Care, Risk & Insurance, Modern Health Care, Risk Insider, CIO Review and more.