Availing a loan is a key decision for a consumer—it means they are committing to borrowing and repaying on time. Most consumers will take out loans multiple times in their lives. Borrowing is always associated with some stress. Hence, providing borrowers with the best possible experience and equipping your team with suitable tools to offer such an experience is crucial for fostering trust and repeat lending.
While there are many functionalities that you need in your loan servicing software, the functionalities discussed in this article are crucial to ensure a positive customer experience for a growing portfolio. The functionalities discussed in this article are from Lending Life Cycle perspective.
Lead in-take is the first interaction that borrowers have with lender’s business and sets the tone for the experience. If the experience is sub-optimal, it will be difficult to stop borrowers from immediately going to another lender.
A good LMS should take in leads from various sources be it internal or external. Lead sources include, walk-in leads, call-in lead, website leads, landing page leads, leads from affiliate marketers, leads from lead providers etc. The LMS should offer flexible open interfaces to take-in leads from all such sources and to manage the acquired leads appropriately
As the leads are taken in, they should go through a set of underwriting rules set by the lender to determine if the lead qualify against such rules. A good system should support both manual and automated underwriting processes with a configurable rule based engine. Lenders should be able to create distinct policies and workflows for different products so that the right leads are accepted. Underwriting reduces the lead acquisition cost and ensures quality of leads before they are sent to third-party bureaus for scoring.
Scoring determine a borrower’s financial viability and assess risks involved with lending to the borrower. There are many third-party credit bureaus offering decisioning systems to suite to the varied needs of lenders. A good Loan Management System should be capable of integrating with multiple credit bureaus at the same time to score the loan applications in order to minimize the risk involved in lending to a borrower.
Processing and E-sign
Once the Loan Application is scored, it is ready to be funded. This means, the application is ready to be originated as a loan. At this point the lender’s agent should call the applicant to ensure all the information furnished in the application are correct and to obtain the consent of the applicant on the type of loan, terms and conditions of the loan they opt for. A good Loan Management System should support and configure multiple loan products with varied flavors and should be able to generate an accurate repayment schedule based on the product, interest rate, term and other fees.
At this point, the applicant signs the Truth In Lending Agreement (TILA). TILA / E-Sign document as it is called in the online lending community ties up the lender with the customer in a legal binding. The content of a TILA differs based on the lenders and state to which the lending is performed. A good LMS should allow the lender to create and manage multiple templates of Lending Agreement to suit the needs of the lending product, state of lending portfolio and other specifics.
Once the customer signs the agreement, loan amount should be sent to the customer’s account. All online lenders depend on dispersing the cash through many online payment channels such as ACH Processing, Debit card, Credit Card, RCC, Virtual Checks, Image Cash Letters etc. In some cases, Paper Check and Cash transaction are also used by lenders. In any case, the payment channel you choose should get the loan amount into the customer’s account the very same day the loan is approved or at least the next day. Hence, the Loan Management you choose should have seamless integration with multiple payment processing options and should be flexible enough to choose the payment processing method on case-to-case basis.
Repayment & Collection:
Repayment of loans forms the success of a portfolio and the lender. It should be easy for the consumer and the lender to know the balance, payment due, due date, etc of a particular loan. A good LMS should have the capability to let the consumers know the complete history of their loan account. The Loan Management System should provide transparency on their loan account details and should have the capability to initiate re-payment automatically.
Collecting payment on loans moved to collection is another big task that can be cumbersome to the lenders. The lender should know how much to collect, whether the payment accrues interest, what should be the mode of payment, etc. A good Loan Management System should have the capability to allow lenders to handle collection loans as the lender wishes.
Most importantly the Loan Management System should have the ability to record and act upon these transactions be it credit or debit or return or collection.
Analytics plays a major role by helping lenders’ through its predictive and forecasting models to make informed decisions. A good Loan Management System offers a multi-dimensional view of various aspects of lending life cycle covering leads, conversions, credits, debits, returns, accounting, agent performance, campaign and product performance, trends amongst the other things.
Automatic Emails and Texts:
Emails and Texts are the key modes of communication to keep customers informed about various events like loan approval, loan rejection, payment reminders, payment returns, loan completion, etc. In addition to these transactional events, Emails and Text messages play a major role when it comes to promotional campaigns. An ideal loan management system should have options to create multiple templates of Email and Text message contents based on their specific workflows and configure them to be triggered automatically based on events. Also, it should have open interfaces to integrate to popular and cost-effective providers of such services.
In this article, we have covered the key functionalities of a Loan Management System from the perspective of the Lending Life Cycle. These are the bare minimum capabilities that you should look for when choosing an LMS for your lending portfolio. In the next article, we will discuss the need for mobile enablement of a Lending Portfolio.
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