Loan Processing Software: Exploring the Versatility of LMS Capabilities
Availability of a loan is a crucial decision for a consumer—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.
Even if your loan servicing software or loan processing software needs many features, the ones covered in this article are essential to provide a satisfying user experience for an expanding portfolio. The functionalities discussed in this article are from the Lending Life Cycle perspective.
Lead in-take is the first interaction that borrowers have with the lender's business and sets the tone for the experience. If the experience is sub-optimal, stopping borrowers from immediately going to another lender will be challenging.
A good LMS should take in leads from various sources, be they internal or external. Lead sources include walk-in leads, call-in leads, website leads, landing page leads, and leads from affiliate marketers and lead providers. The LMS should offer flexible open interfaces to take in leads from all such sources and manage the acquired leads appropriately.
As the leads are taken in, they should go through a set of underwriting rules the lender sets to determine if the lead qualifies against such regulations. A sound system should support 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 suitable leads are accepted. Underwriting reduces the lead acquisition cost and ensures the quality of leads before they are sent to third-party bureaus for scoring.
Scoring determines a borrower's financial viability and assesses the risks involved with lending to the borrower. Many third-party credit bureaus offer decision-making systems to suit the varied needs of lenders. A good Loan Management System should be capable of integrating with multiple credit bureaus simultaneously to score the loan applications to minimize the risk involved in lending to a borrower.
Once the Loan Application is scored, it is ready to be funded in Loan Processing Software. It means the application is prepared 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 is correct and to obtain the applicant's consent on the type of loan and terms and conditions of the loan they opt for. A good Loan Management System should support and configure multiple loan products with varied flavors. It 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). The TILA / E-Sign document, as it is called in the online lending community, ties up the lender with the customer in a legally binding way. 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 Agreements to suit the lending product's needs, the lending portfolio's state, and other specifics.
Once the customer signs the agreement, the 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 cards, Credit Cards, RCC, Virtual Checks, and Image Cash Letters. In some cases, Paper Checks and Cash transactions are also used by lenders. In any case, the payment channel you choose should get the loan amount into the customer's account the 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 be flexible enough to select the payment processing method on a case-to-case basis.
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, and due date of a particular loan. A good Loan Processing Software should be able to let consumers know the complete history of their loan account. The Loan Management System should provide transparency on their loan account details. It should have the capability to initiate repayment automatically.
Collecting payment on loans moved to the collection is another big task that can be cumbersome for lenders. The lender should know how much to manage, whether the payment accrues interest and the mode of payment. A good Loan Management System should have the capability to allow lenders to handle collection loans as the lender wishes.
Most importantly, the Loan Processing Software should be able to record and act upon these transactions, be it credit or debit, turn, or collection.
Analytics plays a significant role by helping lenders make informed decisions through its predictive and forecasting models. A good Loan Management System offers a multi-dimensional view of various aspects of the lending life cycle, covering leads, conversions, credits, debits, returns, accounting, agent performance, campaign and product performance, and trends, amongst other things.
Emails and Texts are the critical modes of communication to keep customers informed about various events like loan approval, rejection, payment reminders, payment returns, and loan completion. In addition to these transactional events, emails and text messages are significant in 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 with popular and cost-effective providers of such services.
In this article, we have covered the critical functionalities of a Loan Management System from the perspective of the Lending Life Cycle. When choosing an Loan Processing Software for your lending portfolio, look for these bare minimum capabilities. In the following article, we will discuss the need for mobile enablement of a Lending Portfolio.
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