The Search for Approval

There are two stages to acquiring a loan: pre-approval, and approval. In the pre-approval stage, the bank or lender looks at a client’s application and financial history, which helps to determine whether the application process will move forward. During this time, the client does not yet have to supply any documentation to verify assets, income or employment, and a decision is based largely on the relationship between the client and various financial institutions.

“It’s important to remember that a pre-approval is not a commitment for a loan,” says Jeff Schwartz, executive director of Consolidated Credit Counselling Service of Canada. “It is only an initial step, aimed to give the client an idea of what to expect.”

A number of factors can influence the course of a loan application, even in the initial stages: if there is information on the application that is unverifiable, or if a cursory glance at a client’s credit reveals a less-than-ideal financial history, the process may not move forward. Certain changes in circumstance, like loss of income or personal injury, can also affect the process.

But if all goes well, the loan application process moves forward. At this point, the client is required to provide credit records, a list of assets (if any), employment history, and proof of income in order for the lender to verify and determine firstly, if the client can be approved, and secondly, what the terms of the loan will look like. Depending on the exact type of loan in question, additional information might be required in order to be approved. All this information is used to create a completely bespoke financial experience for the client by factoring in all aspects of a client’s life. This helps to ensure that the loan fits seamlessly into their lifestyle and is a minimal financial burden. 

“Approval is meant to get you a comprehensive picture of what your experience will look like,” explains Schwartz. “The lender is saying, ‘If we advance you a loan, how does the payment of the loan factor into your debt, and can you afford it?’”  

Once all the “nitty-gritty” of the loan has been ironed out, the lender—in the case of approval—will issue a loan commitment for a determined period of time. If the client wishes to move forward, the loan is signed. However, the loan commitment can expire. Markets are always in flux, and the interest rate offered cannot be held forever. It is important to keep this in mind when going through the application process in order to ensure that the process does not have to begin anew. Once signed, the terms of the loan come into effect, and the client is given access to their newly acquired funds. 

Life can be uncertain enough. Understanding the process of acquiring a loan can make everyday financial strains much easier, and ensure that you are prepared for whatever life throws your way.