6 Loan Management Software Features for Lenders

All loans work as enablers, existing to provide consumers with the means to pay for something over time rather than all at once, such as is the case with auto loans or home mortgages. The more difficult a lender makes it to get approved for a loan, the more likely a potential borrower is to take their business elsewhere. So, the simpler and quicker a lender makes the loan application process, the more likely a consumer will choose that lender. This is why many consumer lenders are adopting modern loan originations and loan management software, features and benefits of which position a lender well for providing a better and more personalized experience to their customers.

Lenders are certainly taking note. The market for loan management software alone globally was valued at $5.9 billion in 2021 and will grow at a compound annual growth rate (CAGR) of 17.8 percent by 2031, according to a report by Allied Market Research, when it’s predicted to reach $29.9 billion. With the increasing awareness of loan management software’s features and benefits, lenders are seeing how current technology is surpassing that of their legacy loan management software. Features that loan management software provides need to be both flexible and robust, allowing lenders the agility to adjust their lending strategies to current market conditions.

Basically, modern loan management software consists of a digital, cloud-based platform that assists lenders with automating a range of processes, from the first payment to the last. This software also empowers financing companies to offer their customers products, interest rates, and payment terms based on the data they gather. Add to this the insights such data can generate with integrated analytics applications within loan management software, and the benefits start to multiply.

Many loan management software features also help increase the efficiency of a lender’s operations, driving portfolio growth and profits. While such solutions used to be rare outside big banks and other large lenders, advances in related technologies allow small and mid-sized enterprise (SME) lenders to better afford loan management software. Features such as scalable, cloud-based subscriptions offered by companies providing software-as-a-service (SaaS) have also made this technology available to SME lending companies.

Though this technology helps level the playing field between lenders of all sizes, it can help more sizable enterprises as well. For larger lenders, cloud-based software platforms are gradually replacing legacy loan management software. Features on these lending platforms allow them to react more nimbly to changing market conditions, providing additional lending opportunities as well as greater flexibility.

Before taking a deeper look into loan management software features, however, it’s important to understand the benefits of such platforms.

Benefits lenders glean from loan management software platforms include:

• Decreasing risk by identifying situations that can lead to delinquent accounts and loan defaults before they occur to allow early intervention that can reduce financial costs to both the lender and borrower.
• Determining the statistical presence of loans based on such categories as certain factors and borrower particulars.
• Diminishing the time it takes to create accounting and other necessary reports, along with borrower statements and invoices.
• Extracting information easily and in real-time to keep lenders up-to-date on accounts, which helps prevent borrowers from becoming delinquent on payments and their loans going into default.
• Reducing calculation errors through automating processes to largely eliminate human-caused errors.
• Simplifying and speeding up once-manual tasks with automation to improve efficiency, such as:
  • Posting late, partial, or unpaid payments.
  • Generating and tracking default notices to customers.
  • Automatically charging fees.
  • Recalculating payment schedules when loans are modified. 

Many of the features loan management software offers also help lenders personalize their services for customers, engaging them and offering a better experience.

The most modern loan management software features paperless, cloud-based, and configurable solutions that utilize automated reports to keep lenders compliant and provide a good consumer experience while enabling lenders to react in near real-time to customer needs and market conditions.

These are six essential loan management software features lenders should look for:

1. Cloud-Based Capabilities

Using a lending software platform based in the cloud is becoming commonplace for lenders of all sizes. One of the most significant benefits for lenders is that cloud-based loan management software features capabilities available immediately, requiring minimal setup. It’s a solution that unlocks a plethora of other capabilities that on-premise legacy software platforms just can’t provide. Modern lending platforms are run by third-party SaaS providers that offer strong support while facilitating automated capabilities and more up-to-date security. These also work on a subscription model, where lenders can often pay a monthly fee for just the services they need.

Cloud-based loan management software features key benefits that include:

• The ability to pay only for services the lender needs.
• Better risk assessments through automating many decisions.
• Easier and less costly integrations.
• The integration of AI supported by machine learning (ML) algorithms to perform customer service and other functions.
• Online sales of lending products, either bundled or individually.
• The provision of omnichannel solutions to communicate with customers via multiple means.
• Quick onboarding of applicants.

Such loan management software is also cost-effective, with elements that allow lenders to configure their processes to meet their and their customers’ individual needs. 

2. Configurable Software for Scalability & Flexibility

Change is inevitable in business, and that’s why it’s so important to be able to configure loan management software. Features that allow easy modification and customization of processes within the software are what allow a lender to scale their operations based on the situation. Being cloud-based, the monthly fees for lending software often means finance companies can increase or decrease their utilization of specific features as the situation warrants. Such flexibility can give an SME or startup lender the advantages a bigger lender offers. When it comes to loan management, software features that can be scaled up or down offer lenders greater agility in their business strategies, allowing them to change decision rules to provide a better service to their customers. 

3. Security & Other Features for Maintaining Compliance

Every lender has a responsibility to comply with relevant lending regulations, and keeping customer information safe from hackers is often one of the most stringently enforced, which is why many finance companies were slow to adopt cloud-based lending platforms. However, with modern cloud-based loan management software, features often include the most up-to-date security applications to prevent bad actors from accessing sensitive customer data. When it comes to auto lending, loan management software features can also help lenders maintain compliance with an array of federal and state regulations.

For example, federal regulations with which auto lenders must comply include:

• Consumer Leasing Act: Regulation requiring disclosure of certain information prior to signing and delivery of the vehicle, enforced by the Consumer Financial Protection Bureau (CFPB).
• Credit Practices Rule: Enforced by the Federal Trade Commission (FTC), this rule covers consumer credit transactions for goods or services.
• Equal Credit Opportunity Act: The CFPB enforces this legislation relating to discriminatory lending practices.
• Fair Credit Reporting Act: This gives consumers the right to receive free credit reports from the three major US credit agencies. While the FTC enforces this legislation, CFPB is authorized to make rules regarding the act.
• Risk-Based Pricing Rule: Under the Fair Credit Reporting Act, this rule enforced by the FTC ensures loan applicants receive their credit scores when applying for a loan.
• Servicemembers Civil Relief Act: Enforced by the Department of Justice (DOJ), this legislation protects active military members against repossessions.
• Truth in Lending Act: The FTC enforces this legislation, with the Office of the Comptroller of the Currency also having authority. It requires disclosure of specific loan terms.

Many of these rules and regulations apply to other types of consumer loans as well. With cloud-based, configurable software for managing loans, lenders can also easily alter processes to account for any new federal or state rules and regulations. The automated reporting of a wide range of tasks also assists lenders when dealing with regulatory agencies.

4. Automated Reporting & Maintenance of Financial Documents

Automated reports offer a means for tracking delinquencies, defaults, compliance, and other issues by creating and maintaining tax reports, invoices, and other financial documents involved in loan management. Software features often enable lenders to automate the whole, allowing them to automate data entry, decision rules, and risk calculations. This reduces the time a lender’s staff spends with such tasks, bringing greater consistency to decisions. When it comes to loan management, software features offered by a third-party vendor should include a list of all their automated features.

5. Real-Time Reaction & Data Analytics

This is often a failure of legacy loan servicing systems, which don’t provide current data on customer accounts. Using a system that enables cloud-based loan management, software features can show account balances and other information in real-time, giving lenders’ customers access to current account information. During the loan servicing phase, such lending systems should be able to inform customers accurately and quickly.

Another way in which loan management software can aid lenders comes from their ability to monitor and trigger actions based on certain events. The software utilizes data gathered throughout the originations and servicing process, with data analytics applications integrated into the platform. When specific predetermined events occur, it triggers an action. For example, a missed payment might immediately issue a response via a borrower’s preferred means of communication that requests immediate payment, or an account delinquent by a certain number of days could trigger a collections action.

6. Paperless Processing & Digital Signatures

Digitization of the consumer finance industry came more slowly than it did with many other sectors, but the arrival of centralized digital storage has done a lot to improve loan management. Software features within cloud-based loan management platforms enable paperless processes with easy access to digitized documents, while the cloud itself allows almost limitless storage. Traditional methods for managing documents made the whole process incredibly slow, with reams of paperwork that often took weeks to administer.

Often, loan management software features include digital signatures and digital contracts. Such digitization made it possible for auto sales to be conducted remotely during COVID lockdowns, but lenders also found they sped the whole origination process as well. Modern lending software helps coordinate workflow, sending out a digital contract to an approved applicant, then allowing the applicant to immediately and securely confirm the contract. This optimizes employees’ time and enables quicker dispersions of loans.

Lenders need solutions that can help them throughout the end-to-end loan process. When it comes to loan management software, features must provide what lenders need. With defi SOLUTIONS, lenders get solutions beyond just the originations process. In fact, with defi MANAGED SERVICING, lenders can provide their customers with a cloud-based contact-center-as-a-service (CCaaS) experience, which includes intelligent virtual assistants and other AI-enabled capabilities. Lenders can additionally benefit from defi SERVICING, which offers an array of software solutions that include automated and rule-based workflow tools, along with access to industry databases, servicing from a single platform, and the ability to update account information in real time.