Online loan origination process has become more nuanced vis-à-vis the competitiveness and regulations in recent times. Today, businesses can avail end-to-end lending solutions by choosing a reliable loan origination software for complete loan cycles.
According to Statista, the digital lending market in India is expected to reach 350 billion dollars by 2023. A trusted loan origination software is the answer to a positive effect on the underwriting standards, cost, time approval, and avoidance of errors. Here are SIX reasons why you must choose a trusted LOS partner.
What is a Loan Origination Software?
Before assessing the right loan origination software, let’s understand what loan origination is.
Loan origination is a process that comprises multiple stages, from loan application to financing or rejection of the loan application. The process begins when a borrower applies for a loan from a lender and ends with the final funding or rejection of the loan. This broadly covers the following steps:
- Loan pre-qualification: This involves checking the authenticity and eligibility of the borrower. They are asked to submit important documents like proof of identity, employment status certificate, bank statement, and credit score.
- Application: The borrower gives relevant information to the lender for loan application processing and underwriting. Digitisation helps simplify this otherwise cumbersome process.
- Application processing: This involves reviewing and verifying the loan application for authentication and correction, if any.
- Underwriting: Underwriting involves gauging the creditworthiness of the borrower. Depending on the type of loan, factors affecting underwriting include credit score, debt and liabilities, income, and value of any collateral, among others.
- Credit decision-making: The result of underwriting is credit decision-making, which decides the approval or rejection of the loan application by the lender. This involves risk factors and credit scores. Since the lending process is highly regulated, a quality check is ensured to comply with regulations and avoid errors.
- Funding: After underwriting, the lender makes the fund available for the borrower.
Now, a loan origination software (LOS) helps in moving the entire lending process online in a faster and more convenient way. It comes with lending solutions like:
- Automation of data collection from borrower
- Verifying relevant documents
- Identity validation
- Automation of the underwriting process
- Enabling integrations for ease of use
Here are some of the reasons why you must choose the right LOS partner:
1. Easy Onboarding and Document Verification
Your LOS partner should have an API functionality to handle loan requests by merging technologies for easy onboarding, credit layouts, document verification, loan disbursal, and loan-specific purposes. APIs help meet the rising needs of borrowers by enabling digital banking capabilities on LOS software. Technologies like artificial intelligence and machine learning help extract relevant data from customers’ financial documents. This helps in making correct credit decisions and improving customer satisfaction.
2. Facilitating compliance
A trusted LOS partner can ease up regulatory issues by merging important compliance pieces in their software. Such a software can configure compliance-centric business rules to handle policies, tasks, and procedures by supporting documentation, confirmation tools, and lending regulations. The rules could take in data elements (say, a medical record) and trigger an action based on compliance with regulatory requirements.
Depending on the type of loan, your loan origination software partner needs to have seamless integration with external data sources like cash flow or type of business for loan decision-making. It should be able to maintain copies of borrower correspondence to support final decisions and serve as proofs for audit.
The need for automation in your LOS partner extends broadly to meet the flexibility and adaptability that grows with your business. A solid loan origination software will have the capacity to automate services to improve customer experience. This ensures potential long-term gains associated with manual errors, staff hours, and overhead costs.
As a result, you have faster decision times by differentiating credible loan applications from disparate ones.
Loan origination involves several stages to complete the loan process. Your LOS partner needs to be flexible enough to integrate its solutions and offerings with individual lenders, banks, and large financial corporations through the entire loan cycle.
A modern UI with the ability to move users from screen to screen across all stages and channels is of paramount importance. In addition, a trusted LOS software needs to display appropriate user-specific data, while providing easy access to loan information.
As businesses grow, there is a need for frequent and timely upgrades of lending solutions, innovations, and updates to scale rapidly. Your LOS partner needs to be scalable that should grow with your lending business. As lenders expect to make timely decisions, a trusted loan origination system allows easy configuration of solutions to deliver the highest levels of service. It can do so with robust integrations and configurable options while adhering to compliance checks, risk models, and credit policies.
6. Portfolio risk management
A strong rationale for choosing the right LOS partner revolves around improved data integrity and governance.
With the right assessment of the loan portfolio, the loan origination software should be able to see the risk exposures and how they change over time. Sound practices and the right tools are essential for portfolio risk management. By using the right portfolio reporting tools, you can avail yourself options from your LOS such as:
- Document and workflow management
- Availability of a variety of risk rating models
- Account aggregation
- Exposure analysis
- Continuous risk monitoring
- Framework for scoring models
To sum up
A successful digital lending experience and consumer journey revolve around choosing the right loan origination software. By finding one, you can ensure the long-term growth of your business and address the challenges in legacy loan origination systems for a smooth borrower experience.
Finezza is a powerful end-to-end digital loan origination and management software that provides intelligent lending solutions to help finance great ideas at any point in the business ecosystem. Reach out to our experts today to know how Finezza can supplement your lending business.