While applying for a loan used to involve lining up at a traditional bank and waiting days to hear back about your application, the internet has enabled more agile online lenders to pop up in the dozens, increasing competition and improving the customer experience and convenience.
This has also caused the average time it takes to approve (or reject) a customer’s loan application to plummet. But how does this work, and does it still mean it’s safe to apply for a loan with a fintech lender like Jacaranda?
Understanding how your loan is processed may be helpful when applying for one in the future, as it can give you a reasonable idea of your chances for approval.
Below, we explore how fintech lenders process applications, why they can process loans faster than banks, and the importance of the fintech industry in general.
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Fintech is short for "financial technology", and refers to any business that uses technology to provide faster, more efficient, and more effective financial services for consumers and other businesses. Some examples include:
According to Fintech Australia, there are over 800 registered Fintechs in Australia, and the industry is worth several billion dollars already. So essentially, fintech is the future of finance, and a fintech lender is a business that harnesses such technology to provide loans to customers. Jacaranda Finance is an example of a fintech lender, as we operate 100% online and utilise our own propriety technology to provide fast loans.
Fintech lenders are typically faster than traditional banks because of the innovative technology they use to process their applications. And thanks to fintech lenders like Jacaranda, those older banks are also adapting their loan processing technology to try and improve their speeds.
Everything that is now common in the banking industry, from accessing your bank account online to other finance apps, is a product of the evolution of fintech over recent years.
In the past, all financing went through brick-and-mortar banks. If a person wanted to request a loan, they had to go into their bank’s branch to complete all of their paperwork. Even something as simple as wanting to know an account balance required a person to go into the bank rather than checking their banking app on their phone.
It’s essential to understand the steps involved in the loan application itself if you want to minimise the time it takes to receive approval. Typically, the first part of an application includes selecting how much you need to borrow, the repayment period (if you have the option), and what the money will be used for.
You can then proceed with your application. Most lenders and banks nowadays let you do this online. With Jacaranda, all you have to do is click the ‘Get Started’ button on our website.
When a person submits a personal loan application, they will be asked a series of questions to determine their eligibility for the loan. Typically, the applicant will need to provide some basic personal information (like their name and contact details), proof of identification (100 points of I.D.), proof of income, and residency status. Some lenders require copies of your bank statements. In contrast, other lenders utilise third-party technology, which allows an applicant to submit their bank statements digitally through a secure portal that connects with their bank.
Alongside the above information provided by the applicant, another aspect of the eligibility criteria is the applicant’s credit history- whether the person has good credit or bad credit.
As a responsible lending body, Jacaranda Finance conducts a credit check on all applications. However, our assessment process considers your entire financial situation, meaning your credit score isn't the only determining factor in approval or rejection.
Most lenders have a set of lending criteria they must follow. If you don’t tick off all of the eligibility requirements as stated by the lender, they are unlikely to proceed with your application.
Traditional lenders, such as banks and credit unions, typically have strict credit requirements, whereas online lenders can sometimes be more lenient. If you don’t meet any of these lending requirements, a lender will likely reject your application.
You must meet the following basic eligibility criteria before submitting an application:
If you are unsure whether you're eligible, you can check if you qualify initially. This will not impact your credit score.
We accept a wider range of credit history than a bank or a prime lender, but we do not recommend submitting an application if:
Information you will need to provide:
In some instances, our team may need to request further information or supporting documents from you. Don't worry; we will let you know exactly what we need and why we need that information.
When you press ‘submit’, your application is presented to the lender. Again, each company has its own policies and procedures when processing applications. At Jacaranda Finance, we use our own AI and machine learning to process parts of the application, while traditional lenders generally have to complete the application process manually by a bank employee reviewing the information you have submitted.
To give you an idea of how applications are assessed by a fintech lender, the Jacaranda Finance steps are outlined below:
Each lender will assess loan applications differently based on their own internal criteria. But when assessing your application, here’s what they generally look for.
Your employment and income
Having some form of income is essential when applying for a loan, as the lender will need to verify that you'll be able to actually repay what you borrow. They will check your current employment status and salary/income, as well as how long you've held your current jobs. Some lenders might disqualify you based on your income, type of work or if you've only just started a new job.
If you're on benefits like Centrelink, this often can't be your primary source of income to get approved. A common threshold is for at least 50% of your pay to come from work.
Your expenses
Lenders will go through your recent financial history (at least a few months' worth) to see what you've been spending your money on and how much you've been saving. Spending too much money compared to your income, or spending too much on certain categories like gambling can harm your chances of approval.
Cutting back on non-essentials and building up a savings buffer can put you in a better position when you apply.
Your current debts
If you have any loans or credit cards, lenders will factor these in as they are repayments you'll generally need to make. Depending on how much you've already borrowed and owe, they might deem you to be too high of a risk and decline your application.
Your credit score and recent credit activity
Most lenders will check your credit score whenever you apply for finance. As a general rule, the higher your credit score the more likely you are to be approved, as a high credit score indicates that you're a responsible borrower.
Also visible when you submit an application is whether you've done the same with other lenders recently. Doing so too many times can be flagged by an assessor.
'High-risk' debts
Lenders also tend to keep a sharp eye out for some of the 'riskier' classes of debts, which today include the likes of wage advances, short-term payday loans and potentially even buy now, pay later (BNPL).
Whether you're securing the loan or not
Personal loans come with two different options: secured loans or unsecured loans (car loans are almost always secured).
Our article ‘10 Tips To Improve Your Chances Of Loan Approval’ provides a more detailed breakdown of these, but here are some general things you can do before applying for a personal or car loan:
Jacaranda Finance is an award-winning online lender that specialises in providing fast, fair and flexible loans to the everyday Australian. We were one of the first lenders in Australia to provide a 60-second loan transfer to approved applicants3, while our state-of-the-art proprietary loan processing technology also means our customers can:
With customer service team members and loan assessors available six days a week, we make it easy to receive the funds they need for life’s key expenses.
$3,000 - $25,000
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