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Loan Origination Process Flow in UK Direct Instalment Lending
A reference for lending technology builders
The loan origination process is a sequence of activities that result in an originated loan.
This process shapes the design of loan origination software that supports loan origination operations.
A clear map of the loan origination process is crucial to delivering a loan origination software solution that improves loan origination performance.
Below is a flow diagram representing the loan origination process in UK direct instalment lending.
Underneath the diagram, you'll find an in-depth description of the loan origination process to provide more context for the diagram.
I hope this is a useful starting point for lending technology builders in their discovery efforts and helps build better loan origination software solutions.
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👉 View the Loan Origination Process Diagram
Feel free to make a copy of the diagram and customise it to better fit your own process.
The loan origination process varies significantly depending on the lending vertical.
BNPL lending companies have a very different origination process (and thus different software and technology needs) from mortgage lenders.
The process mapped in the diagram is relevant to Direct Instalment Lending companies operating in the UK.
What defines the UK direct instalment lending domain?
Within the UK Direct Instalment Lending domain, lenders offer a loan product where the lender disburses funds directly to the borrower.
The borrower repays the loan in fixed, scheduled instalments (e.g., monthly) over a defined term (e.g., 6, 12, or 60 months).
Traits of UK Direct Instalment Lending include:
Verticals where this process applies:
Verticals where it doesn't fully apply:
The process product is what you get as a result of the work.
Understanding the process product is critical when designing software solutions because it usually becomes the centrepiece around which all activities revolve.
In the case of loan origination, what is the product of the process?
An active loan is a loan that has completed all necessary approvals, agreements, and funding steps and is now officially live.
The borrower can access the funds, and repayment obligations have started according to the loan terms.
The process trigger is an event that kicks off the sequence of activities to produce the final output.
In the case of loan origination, the trigger event starts the series of actions needed to originate a loan.
Defining and tracking the loan origination trigger event helps with analytics, such as measuring cycle times and conversion rates. It also enables the automation of workflows within the loan origination process.
So, when does loan origination begin?
While it might seem intuitive to think of "Loan Application Started" as the trigger, it is more precise to use the "Loan Application Form Created" event.
The reason for focusing on "Form Created" is that it can be reliably timestamped, even in a paper-based or offline system.
"Application Form" also clearly differentiates from the broader "Loan Application" process, in which the actual starting point might only be identifiable retrospectively.
"Loan Application Form Created" is when a new instance of a loan application form is generated for the borrower (whether digitally or on paper).
The process successful completion is an event that marks the point when the process output is considered produced.
In loan origination, the output is an Active Loan. So, the loan origination process completion event occurs when the loan is activated.
Tracking loan origination successful completion events is helpful in loan origination analytics for measuring cycle times, conversion rates, and volume. It can also trigger automated workflows in downstream processes after loan origination.
So, when is a loan considered activated?
Loan activated is an event when a loan officially becomes active and its terms (such as accrual of interest and start of repayment schedule) come into effect.
This event results from the lender’s formal confirmation that all post-disbursement conditions have been satisfied and that the loan is active.
Formal confirmation typically happens by updating the loan status to “Active” in a digital or paper-based system.
The process failed completion is an event when a process stops before the desired output is produced.
In loan origination, several events can halt the process before a loan becomes active, such as:
Tracking loan origination failed completion events is useful for understanding where drop-offs occur and why. It also helps trigger automated processes when a loan is denied or abandoned.
Loan Denied is an event when the lender decides that a loan cannot be granted to the borrower based on pre-qualification criteria or after assessing the borrower’s risk profile during underwriting.
This event results from the lender’s formal confirmation that the borrower has been denied a loan.
Formal confirmation typically involves updating the loan status to “Denied” in either a digital or paper-based system.
Loan Abandoned is an event when a borrower withdraws, fails to complete the required steps, or becomes unresponsive.
This event is usually triggered when there is no borrower activity on the loan application for a predefined period.
The process effect is an event when the process output produces the desired outcome.
The output is the thing you achieve directly from the process.
The effect is the impact or result that follows from that output.
Identifying and tracking the loan origination effect event helps measure the effectiveness of the loan origination process and optimize solutions to improve it.
So, what is the effect of the loan origination process? When can we consider the loan origination process effective?
The primary reason lenders originate loans is to generate profit from interest payments.
We can say the loan origination process is effective when the loan begins to generate repayments, specifically when the first loan payment is received.
Of course, the receipt of a payment cannot be exclusively attributed to the effectiveness of the loan origination process alone.
As with any effect, there can be multiple contributing factors.
But even an imperfect measure is better than none.
First Loan Repayment Received is an event when the first repayment amount from the borrower toward a specific loan is received, officially beginning the repayment phase.
This event results from the lender formally recording a payment toward the loan in their ledger.
The process flow is the sequence of steps that produce the process output.
The loan origination process flow is the sequence of steps that leads to an active loan.
Understanding this flow is crucial for identifying automation opportunities and building better loan origination software solutions.
In some lending verticals, such as personal loans, the steps can be fully automated, with the borrower being the only human participant.
In others, like mortgages, the process may require significant human involvement.
Regardless of whether the activities are performed by a person or computer, the actual steps remain largely consistent across verticals.
The steps in the loan origination process can be grouped into seven sub-processes:
What happens at each stage of the loan origination process?
Here’s a high-level overview.
The loan eligibility assessment process aims to provide the borrower with an early indication of whether they’ll get a loan approved and on what terms without requiring them to complete a full loan application.
This improves conversion by reducing unnecessary friction upfront and avoids wasting resources on processing and underwriting applications that will be denied.
The steps in this process typically include:
The loan application process begins after a borrower passes the initial eligibility assessment and chooses to proceed with a complete loan application.
The goal of this stage is to collect all the necessary information required for complete credit evaluation and underwriting.
Standardised loan application reduces variance and enables more efficient processing and underwriting.
The steps in this process typically include:
The loan processing process begins once the loan application is submitted for processing.
The goal of loan processing is to ensure that the loan file contains all the required information and documents for loan underwriting to decide.
A well-prepared loan file reduces rework and improves underwriting efficiency.
The steps in the process typically include:
The goal of loan underwriting is to decide whether to approve or deny the loan application. And if approved, on what terms.
A better underwriting process leads to better lending decisions. Better lending decisions mean more approved loans with lower default rates and risk exposure.
The steps in the process typically include:
The loan completion goal is to get the loan offer accepted and move the loan further for disbursement.
The steps in the process typically include:
The next stage after the loan offer is accepted is loan disbursement.
The goal of this process is to ensure the loan funds are deposited into the correct target bank account.
A smoother loan disbursement process leads to faster access to funds for the borrower, improving their experience and reducing costly mistakes, such as funding the wrong account.
The steps in the process typically include:
After the loan is disbursed, the process enters its final stage: loan activation.
The goal of this stage is to formally confirm that all post-disbursement conditions have been satisfied and to mark the loan as active so its terms (such as accrual of interest and the start of repayment schedule) come into effect.
The steps in the process typically include:
Process roles represent the parties involved in the process
Process flow is what work happens.
Process roles are who does the work.
The roles in the loan origination process can vary significantly depending on the lending vertical.
In some cases, such as fully automated personal loans, the only human involved may be the borrower.
In this overview, we intentionally describe roles like no automation or lending technology exists.
Regardless of whether assigning responsibilities to an employee or a microservice, the process benefits from a clear separation of concerns.
Manual-only roles provide a strong foundation for design decisions in service-oriented software architecture.
When building lending technology, it also helps to see the technology-less view to design solutions from first principles rather than the status quo.
Below is an overview of the typical roles in the technology-less loan origination process.
The Borrower is involved in almost every stage of the loan origination process except for Loan Activation.
The Borrower provides information and documents throughout the process and accepts the loan offer during the Loan Completion stage.
The Loan Adviser is the primary point of contact for the Borrower throughout the Loan Eligibility Assessment and Loan Application stages.
The Loan Adviser:
The Loan Adviser's involvement typically ends after handing the case to the Case Manager.
The Case Manager coordinates the process after the loan application is submitted.
The Case Manager is responsible for Loan Processing and acts as a liaison between the Borrower and the lender during:
The Credit Underwriter assesses credit risk, makes the lending decision, and assigns loan terms.
The underwriter's involvement begins after receiving the loan file from the Case Manager and ends with issuing an approval or denial decision.
The Completions Officer prepares the loan offer and performs final checks before submitting the loan for disbursement.
Their involvement starts once the Credit Underwriter makes a lending decision and ends when the loan is submitted for disbursement.
The Disbursement Officer verifies disbursement details, prepares and executes the payment to transfer funds to the Borrower.
Their involvement starts after the Completions Officer secures the Borrower's acceptance of the loan offer and ends with the submission of the loan for activation.
The Disbursement Approver reviews and authorizes payments prepared by the Disbursement Officer.
They act as an additional control layer to prevent errors and fraud during disbursement.
The Loan Activation Specialist handles the final stage of the loan origination process.
Loan Activation Specialist:
Their involvement begins after the Disbursement Officer executes the payment and ends once the loan is officially activated.
I hope this blog post serves as a useful starting point for your discovery efforts and helps you build better loan origination software solutions.
If you’d like to receive more insights on building software solutions to improve lending, consider signing up for our Lending Technology Newsletter.
I run a software engineering firm that builds software for lending companies operating in the UK. We help technology leaders build, modernise and integrate lending software solutions in weeks, not years.
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