The Reds ideally wanted a permanent deal for the 23-year-old this summer but, despite interest from Burnley, the £20 million asking price proved too high.
With little chance of first-team football, it is understood Liverpool reconsidered their stance and were happy to entertain loan offers.
Although the likes of Swansea, Norwich, Derby – where Wilson spent a previous loan spell – and Nottingham Forest were in the running, Cardiff are the only ones to meet the financial package which includes a £1.2 million loan fee as well as covering his full wages.
The 19-cap Welsh internationalist has made just two first-team appearances for Liverpool; a third-round FA Cup replay at Plymouth in January 2017 and in the Carabao Cup penalty shoot-out defeat to Arsenal earlier this month.
He spent a successful loan spell at Bournemouth last season.