Loan disbursement
I. What is loan disbursement?
Loan disbursement is when a lender transfers approved loan funds to the borrower or a third party on their behalf. This is the moment when credit becomes cash, turning an approved application into actual purchasing power.
Disbursement marks the end of origination and the beginning of servicing. Once funds are transferred, the borrower becomes responsible for repayment, and interest typically begins accruing immediately.
II. Common disbursement methods
How lenders deliver funds:
- ACH transfer. Electronic deposit to the borrower's bank account. Most common method due to low cost, though processing takes 1-5 business days.
- Wire transfer. Same-day transfer with fees around $10-30. Used for large loans where speed justifies the cost.
- Check. Physical or digital check to the borrower or third party. Still common in auto lending (checks to dealers) despite slower processing.
- Card-based disbursement. Loads funds onto a debit card or mobile wallet for near-instant access while maintaining installment loan structure.
Lenders balance cost per transaction against borrower expectations for speed. A consumer expecting funds today may abandon their application rather than wait several business days.
III. Types of loan disbursement
Full disbursement releases the entire amount in one transaction. Standard for personal loans, auto loans, and most consumer credit products.
Partial or staged disbursement releases funds in installments based on milestones. Construction loans disburse as projects progress. Student loans disburse each semester. Business lines of credit allow draws as needed.
Third-party disbursement sends funds directly to vendors rather than the borrower. Auto lenders pay dealerships. Mortgage lenders disburse to title companies and sellers. Student loan funds go to schools first, with remainders released to students.
IV. Why disbursement speed matters
Research shows 64% of consumers want instant loan funding, with more than one in four requiring funds within 30 minutes. When disbursement takes too long, lenders face what's called "approval fallout," where approved borrowers abandon the process before receiving funds.
Each lost deal represents sunk costs in acquisition and underwriting with no revenue to offset them. Payment rail limitations contribute significantly to this problem. Lenders using faster disbursement methods report higher conversion rates from approval to funded loan.
V. Operational requirements
Disbursement requires more than pushing money out the door. Lenders must verify bank account information, confirm signed loan documents and compliance requirements, record transactions accurately for accounting and servicing, and activate repayment schedules.
Modern origination platforms automate this process. Integrated systems verify accounts instantly, route contracts for e-signature, trigger disbursement when conditions are met, and activate servicing without manual handoffs.
The most sophisticated lenders treat disbursement as a competitive advantage. Faster funding drives higher conversion rates, better experience creates repeat customers, and automation reduces costs per loan.
VI. Bottom line
Loan disbursement is where approved credit becomes actual capital. The method and speed directly impact conversion rates, operational costs, and competitive position.
LoanPro's origination suite integrates with modern payment rails and card-based disbursement options, giving lenders flexibility to meet borrower expectations for speed while maintaining control over the lending experience. If you're looking to reduce time from approval to funding, reach out to us.