In the current hybrid borrowing environment, automated loan origination has become crucial for lenders to ensure customer satisfaction and profitability. To achieve this, lenders need to choose the appropriate loan origination software that can streamline various stages of the loan origination process. This article delves into the significance of loan origination software. It offers guidance on selecting the best one to boost productivity and profitability while providing top-quality service to borrowers.
Loan Origination Software – What Is
The Loan Origination System (LOS) is a crucial part of the lending process, enabling financial institutions to manage loan applications efficiently. It involves the steps lenders take from when a client applies for a loan until the application is approved or denied. This process varies depending on the type of loan, and each financial institution may have its unique approach to loan origination.
Previously, loan origination could take up to a month to complete, but this timeline has been significantly reduced with the advent of loan origination software. The LOS streamlines the loan application process, from initial conversations with the client to multiple touchpoints and meetings. As a result, lenders can make better-informed decisions regarding loan approval while improving the customer experience.
Loan Origination Procedure Stages
Pre-Qualification
The borrower’s legitimacy is initially assessed in the pre-qualification or pre-screening phase. The applicant must provide any government-issued ID proof, proof of job or other sources of income, proof of creditworthiness, and bank or loan statement(s) from the past. When the lender receives these documents, the verification process begins.
Application
At this point, the borrower gives the lender all the data necessary for processing and underwriting the loan. The loan application used to require a tonne of papers in the past. Yet, enterprises are now choosing digital software and processes. Consequently, applicants can submit their applications online or using a mobile app. Using digital tools speeds up the application process and reduces human mistakes.
Application Processing
Lender staff members begin working on further procedures once the application is submitted. It is typically a drawn-out process. To validate the application, it is examined by several departments. If any data was wrong or more information was required, the verification staff had to contact the consumer. The process is quicker for the firms with the new computerized system, and the loan application is quickly processed.
Underwriting
The Loan Document Management System examines the borrower’s financial data at this step. They consider various factors, including the applicant’s credit score, risk score, amount of outstanding debt, etc., to determine their qualifications.
Credit Assessment
The application will either be accepted or refused in the following phase. The credit decision is made faster thanks to software. The risk variables and scores are assessed by modern AI-powered software.
Quality Control
In this last phase, the application is examined again to ensure it complies with all internal and external laws and regulations. The loan company performs a manual quality check to prevent any digital errors.
Four Essential Elements of Loan Origination Software
- To transmit the loan application and reply to the applicant, it ought to have an API. APIs are essential to the effectiveness and turnaround speed.
- To lessen the possibility of human error, the software should be able to automatically collect financial data, process client information, make credit judgments, and do other critical tasks.
- The loan origination software needs to make the decision-making process as simple as possible. Lenders don’t have to manually check the application when using it, which gives accuracy and saves time.
- The tools for this program should be all-inclusive, allowing users to handle documents, make reports, perform other operations, and verify customer information.
Conclusion
The number of loan applications is rapidly rising due to people’s expanding financial needs. So, lending institutions must choose the best loan origination software to simplify the procedure and provide reliable results.