How Does Automation Work in Loan Origination Software?

Think about how long the traditional lending process takes. Your customer must complete a loan application, you’ll process the application, evaluate risk, make underwriting decisions, and then either approve or reject the application. But it doesn’t stop there. After the loan is approved, you’ll have to pay out the funds, send statements, and collect payments. 

Now, what if you could automate all of that? That would mean a more streamlined and efficient lending process, saving you time and allowing you to focus more on growing your business. It would also mean happier customers whose loans are approved faster and with less hassle. 

The good news is that you can. But how does automation work in loan origination software and how can it help you? This post will show you what it can mean for your business.

Overview

So, how exactly does automation work when it comes to loan origination? Well, as the name implies, you automate some, or all of the steps in your lending lifecycle. This means less human involvement, faster processing and approval times, and an overall improved process.

But what exactly can you automate?

Loan Origination

Loan origination is the entire process from the customer completing and submitting their loan application to the funds being paid out or the loan being rejected. It’s quite a lot of work, but with loan origination automation it’s faster and more efficient.

Here are examples of steps you can automate:

• The application. Customers can complete the application from anywhere in their browser or on their device of choice. It’s easy to use for the customer and allows you to get all the information to process the application.
• Application processing. Although you’ll want some human involvement in the processing of the application, it’s best to automate as much as possible. This allows you to make better decisions based on automatic customer evaluations.
• Risk evaluation. Advanced solutions using machine learning and data make it possible for you to make the most accurate decisions possible.
• Emails. You could send custom emails to customers during specific stages of the process automatically. 
• Underwriting. You can automate your underwriting with a credit scoring model that reduces credit risk and improves portfolio yield. Also, you can add your own scoring criteria to the software that customizes approvals based on your business needs.
• Decisions. The software can provide you with all the information and analytics necessary to make informed decisions. It can also make the decision automatically, if that’s what you would prefer.
• Signatures. Everyone’s already used to signing documents online, so you could automate the signing of the documents by integrating the software with e-signature platforms.

Loan Servicing

Once you’ve approved the loan and paid out the funds to your customer, you should service the loan.

During this stage, you could automate:

• Statements. The system can pull data from its repository and compile and send statements to all your customers.
• Interactions. You can collect and log all interactions with your customers. When necessary, you can easily access these interactions. 
• Credit bureau data. You can get continuously updated data from credit bureaus for all your customers. This can help you pre-empt any defaults by customers.
• Payment alerts. You can automatically send alerts to your customers about upcoming or overdue payments. You could also get alerts when there is any potential for bad debt.
• Account management. By updating customer information automatically every time there is a change of information or an overdue payment, account management is much easier.

Payment Collection

Maybe the most important part of the loan lifecycle is collecting payments from customers. After all, it’s when you get paid. Here you can set up an automatic collection and action calendar for each customer. This includes the sending of statements, payment reminders and controlling which payments have been made. The system can also deal with write-offs automatically, freeing up time for you to deal with more important things.  

Loan Reporting

In addition to automating your loan origination, loan servicing, and payment collection processes, you can also automate your loan reporting. By having automated reports, you’ll always know what’s going on in the business and be up to date with your customers, loans, and risks.

How Does Automation Help Lenders?

With all that automation can offer, how exactly it can help you and your business?

With automation, you can process more applications with a smaller workforce and reduce the delays and costs of paper processes. Not only does that benefit your business, but by improving the speed and accuracy of your loan applications, you provide a better user experience to your customers. And satisfied customers mean more business, and more revenue for you.

It helps you further by giving you the ability to have predictable and repeatable processes and cuts out human error. This reduces your risk and enables you to make better decisions on the evaluation and approval of loans. Where your process falls short, it also enables you to analyze performance and find ways, and avenues, where you can improve.

Downsides to Automation 

Considering all the benefits offered by automating large parts or all of your loan lifecycle, you might wonder if there are any downsides. 

The first place where it can fall short, is that there is little or no human-to-human interaction. Remember, customers are making big decisions when deciding to take out a loan. Sure, the process is quicker and more convenient, but customers often need a human to answer their questions, comfort their fears, and help them find the right product for their needs.

Another issue with automation in the loan origination system is that it relies on technology and the internet. Technology can make lives easier, but sometimes things can go wrong. This means, for instance, that when your system is offline, you won’t be able to accept and process any new application. This leads to delays and reduced customer satisfaction.

Final Thoughts

If your business heavily relies on financing customers to buy your products, it might be worth your while to look at loan origination software. With it you’ll be able to speed up your process, be more efficient, and service your customers in the best way possible.

Financial Network, Inc. has been building flexible loan origination technology for America’s financial institutions for over 30 years. Insight and experience leads to the launch of a loan origination and decisioning platform focused on lender growth and autonomy. The mobile-first FNI Blueprint™ LOS, paired with the FNI DecisionCore™ decisioning platform makes up the lender’s ultimate toolkit for contactless loan origination, decision testing, and strategy implementation. If you’re interested in learning how contactless lending can help level-up your workflow, talk to a lending technology expert today.