Loan Origination Process is the initial and most crucial stage in loan servicing. With a renewed focus on customer engagement & satisfaction, lenders are concentrating on the elements of design & delivery that fulfil customers’ expectations first.
The process differs for every lending company. All lenders are free to choose a loan origination process that suits them, so they decide how it starts, the stages involved, and where it ends. The approval criteria differ for each loan type. Each company’s loan origination process is the secret sauce that makes them different from the rest of the players in the market.
The process provides lenders with good insight across all journey stages when built to perfection. Improving the stages of loan origination can help players in the lending sector tap into uncaptured market segments. It also helps them win against the competition. Often, loan origination practices involve using alternative data and sending out SMS updates to customers to increase their chances of success.
Explained below are the stages of the Loan Origination Process:
Step 1: Pre Qualification Process
The pre-qualification stage, which is the very first stage of the loan origination process, holds distinct significance. In this stage, the lender provides the potential borrower with a list of all the items required to submit in order to obtain a loan. This list may include documents such as ID Proof / Address proof (e.g., Voter ID, AADHAR, PAN Card), current employment information (including salary slip), credit scores, bank statement, and previous loan statements. Once the borrower submits the necessary information, loan underwriters review the documents. If everything meets the requirements, they declare a pre-approval, allowing the borrower to proceed with the loan application process.
Stage 2: Loan Application
During the second stage of the loan origination process, the borrower completes the loan application. The application procedure can be either paper-based or electronically monitored, depending on the lender’s preference. Many modern-day lenders are embracing new technologies that enable borrowers to conveniently complete the application online through an accessible website or mobile app. Subsequently, they match the collected data with the specific loan products they offer.
Stage 3: Application Processing
On receiving a loan application, the credit department at the financial lending company reviews it for accuracy, genuineness & completeness. At this stage, if a loan assessment officer finds out that the required fields are not completed, they have the authority to return the application to the borrower or the credit analyst, so that they can reach out to the borrower to source the required missing information.
Commercial lending companies count on loan management systems to accurately assess the creditworthiness of borrowers and even facilitate the easy processing and decisioning of loans.
Stage 4: Underwriting Process
The underwriting process plays a key role in determining the fate of the loan application. Here, risk analysts evaluate the application against various criteria like credit score and repayment ability, among other things. Many financial lending companies have their own rules and processes for scoring that are guided by industry standards.
The latest loan origination workflows use programmable rule engines & API integrations to make the loan origination process error-free and quick.
Stage 5: Credit Decisioning
Credit Decisioning is the phase where an application is approved, denied, or sent back to the originator for additional information, depending on the result of the underwriting process.
Using an automated process for credit decisioning allows a degree of predictability in the process. Even if there are changes in the loan decisioning parameters such as interest rates or tenure, they can be implemented into the system without any significant delays.
Stage 6: Quality Check
Given the highly regulated lending environment in the country, a quality check is a vital aspect of the lending process. A typical loan application is sent to the quality control queue for auditing to ensure compliance with guidelines issued by the RBI. This helps banks and NBFCs avoid penalties and consumer lawsuits in case of a dispute.
Stage 7: Loan Funding
The funding in loan origination process begins once the official documents are signed. Any additional documents required for processing the loan or the need for a line of credit can sometimes delay the loan funding process from the lender’s end.
Companies that use loan management systems can easily track funding and ensure that all the needed documents get executed before or together with funding. Lending companies rely on data analysis to take strategic decisions that have implications for their growth. They value their customers and thus welcome technology upgrades such as new-age loan origination software to ease the lending process on the whole.
There is a need for businesses to leverage loan origination solutions that creates loyal customers. Business borrowers are spoilt for choice and can only we swayed with reasonable interest rates and prompt loan servicing. The technological advancements also benefit lenders by helping them make credit decisions more efficiently. They come well integrated with multiple collateral asset valuation guides and VIN checks, plus VIN check digit.
Lenders can easily link the origination data to funding processes and the servicing module in real-time streamlining the process of loan disbursal and making instant loans a reality. Loan Origination Process Management solutions allow receipt of loan applications through multiple channels, touchpoints, and teams. Loan Origination software optimises each stage of a borrower’s journey through the lending process.
Regular loan status updates and speedy loan approvals help banks and NBFCs provide better service to consumers. Mobile apps and virtual branches have allowed unprecedented convenience for consumers across the spectrum. This has helped individuals and businesses benefit from competitive loan products and reduced operating costs for banks and NBFCs.
Finezza is a loan origination process management solution that streamlines the process of loan disbursal and enhances the overall customer experience. It streamlines lending workflows, improves process visibility and leverages data to produce strategic market insights for banks and NBFCs.
To know more about Finezza, get in touch with us!