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Loan Origination Automation: How to Choose Right Software


For employees of traditional banks, a single loan application is a whole story of manual risk assessment, multi-level client verification, including personal interviews, as well as interaction with other divisions and facilities. In addition, the more people involved in this work, the greater the risk of the human factor and the issuance of a loan to the wrong person.

For a client who does not understand why filling out so many papers and why it takes so long, the process of obtaining a loan causes only negative emotions. Digitalization will help reduce the number of pain points for both financial-sector employees and customers, by streamlining the process and making it more customer-friendly.

Loan Origination Process: Steps that Can be Automated

Now there is barely a financial establishment that has not introduced new technologies by digitizing some of its procedures. Thus, the business simply would not survive the onslaught of fierce competition, losing customers who could not tolerate paperwork and a long wait for loan approval.

However, some banks have not yet automated all loan origination process steps. Let us take a look at how to make the most of the loan origination software on the market, improving every aspect of the lending experience.

Step 1: Pre-Qualification

Many mistakenly believe that the loan process starts with the application, but this is not the case. The primary stage is pre-qualification, during which a potential borrower gets acquainted with the conditions and procedures for granting a loan in a bank. And the bank, meanwhile, examines a candidate through the provided documents, such as an identity card, proof of address, and employment information, including earnings data, credit score, and the like.

The traditional way involves the personal submission of documents by the client at the bank branch, as well as an interview. It's inconvenient and time-consuming for both parties. With a proper digital solution, all documents can be uploaded and sent online, and the interviews are conducted via a video conference platform.

If the lenders after examining the documents do not find anything suspicious, the candidate is approved to move to the next step in the bank's lending funnel.

Step 2: Application Submission

Optionally, this stage can be done in an old-school way on paper at a bank branch. However, few people want to use this obsolete method, given that modern technology allows you to do this in a few minutes, from anywhere. 

Using a loan calculator, an applicant will be able to calculate the desired loan amount for the selected period, and a bank will be able to promptly send its offer with all the details of the loan, interest rate, and term.

Step 3: Application Processing

When an application is submitted to a financial loan company, it is checked for accuracy, authenticity, and completeness. If the required fields are not filled out, the application may be sent back or the borrower will be contacted to obtain the necessary missing data.

In the case of filling out an electronic application online, the system simply will not let it through if the required fields are not filled out.

Step 4: Underwriting

This is a key stage at which a decision is made on the possibility or inexpediency of providing a loan. The usual underwriting procedure is a complex and intricate set of measures to analyze and verify information about a borrower to assess the risks that a bank assumes when providing the borrower. An underwriting expert (a credit officer) must determine the likelihood of the borrower repaying the loan provided in full and on time.

All procedures of this stage must be performed with surgical precision, not a single detail must be overlooked. And since there is a huge amount of information involved, using a digital lending platform supported by machine learning algorithms will help speed up the process and avoid personnel-related errors.

Step 5: Loan Approval or Rejection

At this stage, an application is approved, rejected, or sent back to the candidate for missing information. To more accurately predict the outcome of a loan to a borrower and make a quick loan decision, tech-savvy organizations use automated AI-based tools.

Step 6: Quality Control

Before signing an agreement for issuing a loan, it is necessary to make sure that the prepared package of documents is up to par. This is done by an independent QC to verify that the loan complies with both regulatory requirements and investor guidelines.

Step 7: Loan Disbursement

At the final stage, several documents are signed and the agreed amount is credited to the borrower's account and becomes available for use.

A complicated lending process can scare away potential borrowers and complicate the workflow of landers. Fortunately, all of the above loan origination steps can be fully automated, which will reduce the amount of paperwork and also improve the entire process, making it simple and understandable for both parties.

What Else to Look for in Automated Loan Origination Software

With the developed SaaS lending automation platforms, human involvement can be minimized at almost every stage above. Let us see what features of the loan automation software helps to optimize workflows.

Loan Servicing & Management

A loan manager should be looking for a loan service and management platform that makes it easy to organize and manage information in candidate profiles. This includes attachments of documents and application forms, status granting, analysis of repayment history and loan transactions, and much more. In addition, third-party integrations are welcome, thanks to which the manager can contact clients via a convenient communication channel, as well as create and add new applications on a single platform.

Digital Onboarding & KYC

To enable remote client onboarding, AI-based software with multiple integrations is used. Clients should be able to quickly and securely upload and send their documents.

Banks are committed to complying with KYC and AML regulations and protecting themselves from intruders who use 3D liveness recognition, video verification, and document recognition.

Decision Engine & Credit Scoring

With machine learning algorithms that can analyze large amounts of customer data from multiple independent trusted sources, the loan approval evaluation, and decision-making process take minutes.

The data is compared with pre-set parameters to assess the behavior of potential borrowers and risks. An intelligent scoring system provides a more accurate prediction of a client's default and based on this, makes a decision to grant or refuse a loan.

Debt Collection

Debt collectors need end-to-end software with features that are useful throughout the collection process until the debt is paid in full. The debt collection platform should contain all the necessary information about the current KPIs of the debt portfolio, as well as credit records with unique tracking of statuses and actions.

It is preferable to have integration with various communication channels, such as voice calls, SMS, and IVR, so that collectors can remind debtors about debt repayment.

Easy-to-use API

In the era of digital banking, customers are demanding access to all financial services remotely. To make this possible, banks use the capabilities of the API and launch their mobile applications with minimal effort and cost. These should be powerful yet simple apps to make it easy for customers to track their loans or BNPL purchases directly from their phones.

It is extremely important that the application interface be truly convenient since it depends on whether the client wants to use it, and hence banking services on an ongoing basis.

How Loan Origination Works in Neofin Software

Neofin offers an all-in-one lending tool, consisting of modules of different functionality, in order to optimize the various activities of the loan origination workflow.

There are modules for fast and accurate credit decision-making, loan management, debt collection, digital onboarding, and more. Modules can operate individually or work as part of a whole in an all-in-one lending platform. 

The platform has a customized interface with visualized summaries, manageable client data, and the ability to create and add new applications directly from the control panel.

We understand the importance of acting quickly and decisively in such a dynamic and competitive market. Therefore, we provide financial institutions with the ability to launch any new lending product within 1 hour. Start your free trial or schedule a call with our product team to learn more.

Neofin Official
Neofin Official
August 22, 2022
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